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Blizzard [7]
3 years ago
7

You are the CFO of a major pharmaceutical firm. A division manager has presented senior management with an investment opportunit

y.
The project would require an investment of $95 million today

If the project succeeds, it will be worth $1 billion in a year. You estimate that there is only a 10% chance that the venture would succeed. If it fails, then in a year you will scrap the project and all of your firm’s $95 million investment will be lost.

Whether the venture succeeds or fails is independent of general market conditions.

The risk-free rate is 3%, the expected return of the market is 12%, and the standard deviation of the market return is 20%. Ignore taxes.

What is the NPV of the project?

$775 million

$870 million

$2.1 million

-$95 million
Business
2 answers:
DochEvi [55]3 years ago
4 0

Answer: $2.1 million

Explanation:

It is mentioned the project is independent of the outcome of general market  which means that

=> beta = 0

Using the CAPM formula which is,

r=rt + B* (rm -rf)

=> r = 3% + 0*(12%-3%) = 3%

Expected value of Project in one year = $1 billions * 0.1

Expected value of Project in one year = $100 millions

NPV = Expected value of Project in one year/ (1 + 0.03) - Initial cost

NPV = 100/ (1 + 0.03) - 95

NPV = 97.1 - 95

NPV = $2.1 million

Viefleur [7K]3 years ago
4 0

Answer:

$2.1 million

Explanation:

We solve for the expected monetary value at the end of the project:

\left[\begin{array}{cccc}State&Return&Probability&Weight\\success&1000&0.1&100\\fail&0&0.9&0\\Total&&1&100\\\end{array}\right]

Then, we have to know at which rate to discount this value so we use CAPM

Ke= r_f + \beta (r_m-r_f)

risk free = 0.03

market rate = 0.12

premium market = (market rate - risk free) 0.09

beta(non diversifiable risk) = 0 (independent from the market threfore no correlation.

Ke= 0.03 + 0 (0.09)

Ke 0.03000

Now we discount:

\frac{Maturity}{(1 + rate)^{time} } = PV  

Maturity  $100.00

time  1.00

rate  0.03000

\frac{100}{(1 + 0.03)^{1} } = PV  

PV   97.0874

NPV: 97.0874 - 95 = 2.0874 we round up and get 2.10 presnet value (in millions)

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CBA stands for cost benefit analysis .

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6 0
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What work-related tasks do you think would be appropriate to be delivered electronically, and what types do you feel would be be
Mandarinka [93]

Answer:

What I feel would be appropriate to be delivered electronically:

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- Requesting invoice for petty cash

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What i feel would be better delivered in traditional setting:

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I believe group brainstorming will be more efficient if team members spare their time to gather together in a private setting and focus on doing so. Doing it electronically will make it hard to communicate and some team members might not focusing on the task.

Firing people also should be done face-to-face. Even though this person is about to be kicked out of the team, we need to know that we appreciate what they've done to the team. Firing using electronic media just seems cold and impersonal.

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According to Garvin's ________ definition of quality, quality is found in the components and attributes of a product.
Vladimir [108]

Answer:

product based

Explanation:

Garvin defined five measures or perspectives of quality:

  1. transcendental perspective: quality that can be perceived but not clearly defined.
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  3. manufacturing perspective: quality is measured as conformance to requirements, e.g. ISO standards.
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