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What should be the primary objective of a business? Is profit maximization concept aligned with this objective? Explain your answer. (9 marks) Nimby plc is
- What should be the primary objective of a business? Is profit maximization concept aligned with this objective? Explain your answer.
(9 marks)
- Nimby plc is considering two mutually exclusive projects: Delphi and Oracle. The possible NPVs for each project and their associated probabilities are as follows:
Delphi |
| Oracle | ||
NPV | Probability of Occurrence | NPV | Probability of Occurrence | |
m | m | |||
20 | 0.2 | 30 | 0.5 | |
40 | 0.6 | 40 | 0.3 | |
60 | 0.2 | 65 | 0.2 |
Required:
(i) Calculate the expected net present value and the standard deviation associated with each project.
(ii) Which project would you select and why? State any assumptions you have made in coming to your conclusions.
- Discuss the limitations of the standard deviation as a measure of project risk.
(14 marks)
- What is risk and why is it an important issue for investment decision making? Explain why the standard deviation may be useful in measuring risk.
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