ECON 500 Excel Assignment Two
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Your company asked you to evaluate
two potential projects. These projects are active for 10 years and have no
salvage life. Both have the same upfront costs, but the revenue stream from
each of the projects is subject to variation, so risk is involved.
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You are given the following
information:
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Firm’s cost of capital: 10%
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Each project will require
three years of investment before revenues are generated.
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The following cost
distribution is given:
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In a new worksheet in Excel,
answer the following:
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1. What
is the expected value of the NPV for each of the projects?
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2. What
is the standard deviation of the NPV for each of the projects?
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3. What
is the coefficient of variation of the NPV for each of the projects?
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4. Which
project has a higher expected return? Which has more risk?
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5. Which
one would you recommend to your company? How does its attitude toward risk
affect your answer?
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