Question
Giordano Company (GC) is considering the following investment project. The initial investments, cashflows, WACCs, and probability of each scenario (optimistic, average, pessimistic) are given in
Giordano Company (GC) is considering the following investment project. The initial investments, cashflows, WACCs, and probability of each scenario (optimistic, average, pessimistic) are given in the following table.
| Optimistic | Average | Pessimistic |
|
|
|
|
| CF (Probability = 30%). CFs in million $ | CF (Probability = 40%). CFs in million $ | CF (Probability = 30%). CFs in million $ |
0 | -770 | -1,025 | -1,280 |
1 | 3,320 | 525 | -1,560 |
2 | 3,151 | 425 | -1,679 |
3 | 2,940 | 320 | -1,685 |
4 | 2,657 | 150 | -1,776 |
|
|
|
|
Probability | 30% | 40% | 30% |
WACC | 7.25% | 10.35% | 12.75% |
a) What are the expected NPV, the standard deviation, and the coefficient of variation of the project?
b) You must explain your approach in 5 lines in writing.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started