1. The risk preferences of the decision maker are directly incorporated in the capital budgeting analysis.
2. It facilitates the process of delegating the authority for decision.
Kavungya answered the question on April 13, 2021 at 10:07
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State the demerits of decision tree.
Date posted: April 13, 2021. Answers (1)
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- A project has the following cash flows
The projects initial cash outlay is Sh 100,000 with a cost of capital of 12%.
Required:
Determine:
(a) The projects expected monetary...(Solved)
A project has the following cash flows
The projects initial cash outlay is Sh 100,000 with a cost of capital of 12%.
Required:
Determine:
(a) The projects expected monetary value (EMV)
(b) The projects NPV
Date posted: April 13, 2021. Answers (1)
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Date posted: April 13, 2021. Answers (1)
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Date posted: April 13, 2021. Answers (1)
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Date posted: April 13, 2021. Answers (1)
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State the merits of certainty equivalent approach.
Date posted: April 13, 2021. Answers (1)
- Assume a project costs Sh 30,000 and yields the following uncertain cashflows:
Compute the NPV of the project(Solved)
Assume a project costs Sh 30,000 and yields the following uncertain cash flows:
Year Cash flow
1 12,000
2 14,000
3 10,000
4 6,000
Assume also that the certainty equivalent coefficients have been estimated as follows:
α0 = 1.00
α1 = 0.90
α2 = 0.70
α3 = 0.50
α4 = 0.30
The risk-free discount rate is given as 10%
Required
Compute the NPV of the project
Date posted: April 13, 2021. Answers (1)
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Outline the methods that can be used to incorporate risk into capital budgeting decisions.
Date posted: April 13, 2021. Answers (1)
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Study the table below and compute the expected cash flow.
Date posted: April 13, 2021. Answers (1)
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Date posted: April 13, 2021. Answers (1)
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Date posted: April 13, 2021. Answers (1)
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value) has also been given.(Solved)
Project A has the following cashflows over its useful life of 3 years. The market value (Abandonment value) has also been given.
Year Cash Abandonment
flow value
Sh`000' Sh`000'
0 (4,800) 4,800
1 2,000 3,000
2 1,875 1,900
3 1,750 0
Required:
Determine when to abandon the project assuming a discount rate of 10%.
Date posted: April 13, 2021. Answers (1)
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Management is faced with eight projects to invest in. The capital expenditures during the year has been rationed to Sh 500,000 and the projects have equal risk and therefore should be discounted at the firm's cost of capital of 10%.
Required:
Determine the optimal investment sets.
Date posted: April 13, 2021. Answers (1)
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A company is considering two mutually exclusive projects requiring an initial cash outlay of Sh 10,000 each and with a useful life of 5 years. The company required rate of return is 10% and the appropriate corporate tax rate is 50%. The projects will be depreciated on a straight line basis. The before depreciation and taxes cash flows expected to be generated by the projects are as follows.
Required:
Calculate for each project
i. The payback period
ii. The average rate of return
iii. The net present value
iv. Profitability index
v. The internal rate of return
Which project should be accepted? Why?
Date posted: April 13, 2021. Answers (1)
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Date posted: April 13, 2021. Answers (1)
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Date posted: April 13, 2021. Answers (1)