Question
The projected situation of an investment project is presented as seen in the following table, which is possible in a normal future scenario. Year Income
The projected situation of an investment project is presented as seen in the following table, which is possible in a normal future scenario.
Year | Income | Expenses |
1 | 250 | 260 |
2 | 270 | 265 |
3 | 290 | 280 |
4 | 300 | 285 |
5 | 320 | 300 |
6 | 340 | 315 |
7 | 350 | 320 |
For the next few years three scenarios are expected with the following probabilities of occurrence:
Scenario | Probability of occurrence |
Pessimistic | 0.2 |
Normal | 0.5 |
Optimistic | 0.3 |
If future scenarios deviate from normal, income and expense conditions increase or decrease by 10%, depending on whether the future scenario is optimistic or pessimistic. Calculate the Net Present Value of the project (NPV), based on the flows and without considering the initial investment, for each of the proposed scenarios (Rediscount rate of 5%) Calculate the Expected Cash Flow = E(VP flow), considering the three scenarios. Calculate the internal rate of return (IRR) in the scenarios proposed and with them and calculate the Expected Return E(r) using the same probabilities from the table of scenarios. Calculate the Standard Deviation of the rates of return.
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