Question
3.Your company is considering a project that will have different NPVs according to the state of the world. What is the coefficient of variation of
3.Your company is considering a project that will have different NPVs according to the state of the world. What is the coefficient of variation of the project's NPV?
| State of World | Probability | NPV |
| Economic Boom | 30% | $15,000 |
| Normal Growth | 60% | $10,000 |
| Market Crash | 10% | -$20,000 |
1.15
1.00
1.82
0.55
0.87
4.Consider the following mutually exclusive projects. At what cost of capital will the net present value of the two projects be the same? (That is, what is the "crossover" rate?)
| Project A | Project B | |
| Year | Cash Flow | Cash Flow |
| 0 | -$4,000 | -$4,000 |
| 1 | $400 | $2,000 |
| 2 | $400 | $2,000 |
| 3 | $2,000 | $200 |
| 4 | $2,000 | $100 |
7.48%
5.97%
6.86%
4.57%
8.72%
5.Consider the following mutually exclusive projects. What is the MIRR of the superior project? Assume WACC is 10%.
| Project A | Project B | |
| Year | Cash Flow | Cash Flow |
| 0 | -$6,000 | -$6,000 |
| 1 | $500 | $4,000 |
| 2 | $500 | $2,000 |
| 3 | $1,000 | $1,000 |
| 4 | $2,000 | $500 |
| 5 | $5,000 | $500 |
5.43%
12.43%
10.41%
16.99%
10.33%
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The Fiscal Impact Handbook
Authors: David Listokin
1st Edition
1138535672, 978-1138535671
