Answer To: Problem 1 Cece Equestrian Tours ProbabilityNPVANPVB 15%(34,000)(12,750) 20%(8,500)2,125...
Prince answered on Mar 07 2022
Problem 1
Cece Equestrian Tours
Probability NPVA NPVB
15% (34,000) (12,750)
20% (8,500) 2,125
30% 17,000 17,000
20% 42,500 31,875
15% 68,000 46,750
Expected NPV
Variance
Standard Deviation
Coefficient of Variation
Prob(NPV <= 0)
Probability NPVA NPVB A pr(Exp - CF)^2 B pr(Exp - CF)^2
15% (34,000) (12,750) $390,150,000 $132,759,375
20% (8,500) 2,125 $130,050,000 $44,253,125
30% 17,000 17,000 $0 $0
20% 42,500 31,875 $130,050,000 $44,253,125
15% 68,000 46,750 $390,150,000 $132,759,375
Expected NPV 17,000.00 17,000.00
Variance 1,040,400,000.00 354,025,000.00
Standard Deviation 32,255.23 18,815.55
Coefficient of Variation 1.90 1.11
Prob(NPV <= 0) 35% 15%
Answer 1 Since, Expected NPV of Both Project is same, which project to be decided, can be chosen
Answer 2 Project A has a higher Standard Deviation and Variance as compared to Project B, Hence, the investment in the Project A would be risker.
Answer 3 Probability of Negative return in Project B is lower than Project, Hence Project A is more advisable to select. Hence, Yes the decision has changed.
Cece Equestrian Tours is evaluating 2 mutually exclusive projects. The probabilities of the different project returns are shown below.
1. Calculate the expected NPV. Which project is better?
2. Calculate the variance and standard deviation. Now which project is better?
3. Calculate the coefficient of variation and the probability of negative return. Does this change your...