Question
Assume that we can estimate a project's cash flows as follows: n Expected Flow E(An) Estimate of Standard Deviation n 0 -$300 $20 1 $120
Assume that we can estimate a project's cash flows as follows:
| n | Expected Flow E(An) | Estimate of Standard Deviation n |
| 0 | -$300 | $20 |
| 1 | $120 | $10 |
| 2 | $150 | $15 |
| 3 | $150 | $20 |
| 4 | $110 | $25 |
| 5 | $100 | $30 |
In this case, each annual flow can be represented by a random variable with known mean and variance. Further assume complete independence among the cash flows.
(a) Find the expected NPW and the variance of this project at i = 10%.
(b) If your risk-adjusted discount rate is 18%, is this project justifiable?
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Contemporary Economics An Applications Approach
Authors: Robert Carbaugh
8th Edition
1138652199, 978-1138652194
