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QUESTION TWO XYZ Ltd is considering three possible capital projects for next year. Each project has...
Given 2 projects, their probability distribution and their possible returns for various states of the economy,...
Given 2 projects, their probability distribution and their possible returns for various states of the economy, your task is to choose one of them for investment. State of the Economy Probability of occurrence of state of economy (Pi) Profit of project A if state of economy occurs Profit of project B if state of economy occurs BOOM 0.2 600 1000 NORMAL 0.6 500 500 RECESSION 0.2 400 0 The investor is expected to select the project that is less risky....
Question Three Explain the effects of inadequate working capital to a firm An investor has an...
Question Three Explain the effects of inadequate working capital to a firm An investor has an investment capital of Sh.2,000,000. He wishes to invest in two securities, A and B in the following proportion; Sh.400,000 in security A and Sh.1, 600,000 in security B. The returns on these two securities depend on the state of the economy as shown below: State of Economy Probability Return on Security A Return on security B Boom 0.4 18% 24% Normal 0.5 14% 22%...
Question 2 (22 marks) Halo Ltd is attempting to measure the riskiness of two projects which...
Question 2 (22 marks) Halo Ltd is attempting to measure the riskiness of two projects which have the following cash flows in different states of the economy. Project Project Probability State NS 000 2 3 N$ 000 950 850 450 350 250 N$ 000 950 550 450 350 150 5 Required: a) Establish, using the standard deviation of cash flows as a measure of risk, which project is riskier. (16 marks) b) Calculate the co-efficient of variation of cash flows...
QUESTION ONE Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that...
QUESTION ONE Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that resources used for rearranging wealth (i.e. bundling and unbundling financial assets) might be better spent on creating wealth ( i.e. creating real assets) Evaluate this criticism. (15 Marks) You are given the following data about available investments: State of the Economy Probability Return (A) Return (B) Strong Boom 0.15 -0.60 0.75 Weak Boom 0.20 -0.30 0.50 Average 0.05 -0.10 0.15 Weak Recession 0.40 0.20...
QUESTION THREE A. A company is considering two alternative investment projects both of which have a...
QUESTION THREE A. A company is considering two alternative investment projects both of which have a positive net present value. The projects have been ranked on the basis of both net present value (NPV) and internal rate of return (IRR). The result of the ranking is shown below: Project A Project B NPV Ist 2nd IRR 2nd 1st Discuss any four (4) potential reasons why the conflict between the NPV and IRR ranking may have arisen. (12 marks) B. Kumi...
Question 4 (10 marks A stock sells for $70 a share. Its dividend payout and end-of-year...
Question 4 (10 marks A stock sells for $70 a share. Its dividend payout and end-of-year price depend on the state of the economy as follows: Boom Normal Recession Dividend $2.00 $1.00 $0.50 Stock Price $80 $73 $40 Assume all three scenarios are equally likely. Give your answers in 4 d.p. (a) Calculate the holding period returns for each scenarios respectively. (b) Calculate the expected holding-period return. (c) Calculate the standard deviation of the holding-period return.
investment analysis QUESTION ONE a) Financial engineering has been disparaged as nothing more than paper shuffling....
investment analysis
QUESTION ONE a) Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that resources used for rearranging wealth (i.e. bundling and unbundling financial assets) might be better spent on creating wealth (ie. creating real assets) Evaluate this criticism. (15 Marks) b) You are given the following data about available investments: State of the Economy Probability Return (A) Return (B) Strong Boom 0.15 -0.60 0.75 Weak Boom 0.20 0.50 Average 0.05 0.15 -0.10 Weak Recession...
1) You are considering two possible projects (Project A and Project B) that would start at...
1) You are considering two possible projects (Project A and Project B) that would start at the beginning of 2020. Your boss has indicated that she only wants to select one of these projects given resource constraints and uncertainties about the economy. She has asked you to evaluate each project and recommend which project you think the company should select. You have made the following forecasts for each project. Project A would require an initial investment of $6.4M (USD) on January 1, 2020...
1) You are considering two possible projects (Project A and Project B) that would start at...
1) You are considering two possible projects (Project A and Project B) that would start at the beginning of 2020. Your boss has indicated that she only wants to select one of these projects given resource constraints and uncertainties about the economy. She has asked you to evaluate each project and recommend which project you think the company should select. You have made the following forecasts for each project. Project A would require an initial investment of $6.4M (USD) on January 1, 2020...
Assume that the economy could experience three possible "states," next year: High Growth, Normal Growth, and...
Assume that the economy could experience three possible "states," next year: High Growth, Normal Growth, and Recession; and that this table shows the probablilities of each state happening and the returns to the stock market if they happen: State of the Economy Probability Return High Growth 0.2 +30% Normal Growth 0.7 +12% Recession 0.1 -15% Do EACH of the following calculations: What is the expected payoff of a $1000 investment over the following year? What is the Expected Return to...
Question 2 (22 marks) Halo Ltd is attempting to measure the riskiness of two projects which have the following cash flows in different states of the economy. Project Project Probability State NS 000 2 3 N$ 000 950 850 450 350 250 N$ 000 950 550 450 350 150 5 Required: a) Establish, using the standard deviation of cash flows as a measure of risk, which project is riskier. (16 marks) b) Calculate the co-efficient of variation of cash flows...
QUESTION THREE A. A company is considering two alternative investment projects both of which have a positive net present value. The projects have been ranked on the basis of both net present value (NPV) and internal rate of return (IRR). The result of the ranking is shown below: Project A Project B NPV Ist 2nd IRR 2nd 1st Discuss any four (4) potential reasons why the conflict between the NPV and IRR ranking may have arisen. (12 marks) B. Kumi...
Question 4 (10 marks A stock sells for $70 a share. Its dividend payout and end-of-year price depend on the state of the economy as follows: Boom Normal Recession Dividend $2.00 $1.00 $0.50 Stock Price $80 $73 $40 Assume all three scenarios are equally likely. Give your answers in 4 d.p. (a) Calculate the holding period returns for each scenarios respectively. (b) Calculate the expected holding-period return. (c) Calculate the standard deviation of the holding-period return.
investment analysis
QUESTION ONE a) Financial engineering has been disparaged as nothing more than paper shuffling. Critics argue that resources used for rearranging wealth (i.e. bundling and unbundling financial assets) might be better spent on creating wealth (ie. creating real assets) Evaluate this criticism. (15 Marks) b) You are given the following data about available investments: State of the Economy Probability Return (A) Return (B) Strong Boom 0.15 -0.60 0.75 Weak Boom 0.20 0.50 Average 0.05 0.15 -0.10 Weak Recession...
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