The cost of equity is 18% and loan can be obtained at 12%. The leverage factor is 0.7. Inflation rate is projected to be 5% over the appraisal life of the project.

Compute the RDR and calculate the Expected NPV for the project.

Compute the Std. Dev. of the NPV and interpret the result.

Compute the CV and interpret the result.

 

A project has a capital investment of $20M in year zero. Operating cost, sales revenue and associated probabilities as shown below. 1 2 4 Project year (a) Operating cost ($M) if: (1) Demand is weak (ii) Demand is avg. (iii)Demand id good (b) Sales revenue (SM) if: (1) Demand is weak (ii) Demand is avg. (iii)Demand id good 4 5 10 6 9 18 4 5 10 6 9 18 The probabilities associated with demand are as follows: Demand (1) Demand is weak (ii) Demand is avg. (iii)Demand id good The residual value of fixed assets is $4M. Probability 0.3 0.5 0.2 3 4 5 10 6 9 18. 4 5 10 6 9 18 5 4 5 10 6 9 18