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- 1. The president of the Martin Company is considering two alternative invest- ments, X and Y. If each investment is carried out, there are four possible outcomes. The present value of net profit and probability of each outcome follow: Investment X Investment Y Net Present Net Present Outcome Value Probability Outcome Value $12 million Probability 0.1 $20 million 0.2 A 8 million 10 million 2 0.3 B 9 million 0.3 3 0.4 6 million 0.1 3 million 0.1 D 11 million 0.5 a. What are the expected present value, standard deviation, and coefficient of variation of investment X? b. What are the expected present value, standard deviation, and coefficient of variation of investment Y? c. Which investment is riskier? d. The president of the Martin Company has the utility functionWhich of these two companies is best for investment? Trend Probability Rate of Retrun (Company A) Rate of Retrun (Company B) Bullish Trend 0.3 50% 25% Normal Trend 0.4 20% 15% Beaerish Trend 0.3 -10% 15%A firm has a choice between 2 investment proposals. Using the information in the table below, which investment will the firm choose? A firm has a choice between 2 investment proposals. Using the information in the table below, which investment will the firm choose? Investment A Investment B Mean return 15% 15% Standard deviation of returns .9% .8% Correlation coefficient -.8 -.7
- . Suppose that New Investors Inc. has the following investment alternatives: Alternatives Probability Yield 1 55% 30% 2 30% 12% 3 15% 10% Determine the expected returnProfitability index. Given the discount rate and the future cash flow of each project listed in the following table, , use the PI to determine which projects the company should accept. ..... What is the Pl of project A? (Round to two decimal places.)a. Given the following information, calculate the expected value for Firm C’s EPS. Datafor Firms A and B are as follows: E(EPSA) =$5.10, σA =$3.61, E(EPSB) =$4.20, and σB = $2.96. b. You are given that σC = $4.11. Discuss the relative riskiness of the three firms’ earnings.
- How would an increase in each of the following factors affect the AFN?1. Payout ratio2. Capital intensity ratio, A0*/S03. Profit margin4. Days sales outstanding, DSO5. Sales growth rateIs it possible for the AFN to be negative? If so, what would this indicate?If excess capacity exists, how would that affect the calculated AFN?Given the following information, calculate the expected value for Firm C's EPS. Data for Firms A and B are as follows: E(EPSA) = $5.10, and σA = $3.63; E(EPSB) = $4.20, and σB = $2.94. Do not round intermediate calculations. Round your answer to the nearest cent. Probability 0.1 0.2 0.4 0.2 0.1 Firm A: EPSA ($1.61) $1.80 $5.10 $8.40 $11.81 Firm B: EPSB (1.20) 1.30 4.20 7.10 9.60 Firm C: EPSC (2.59) 1.35 5.10 8.85 12.79 E(EPSC): $ You are given that σc = $4.12. Discuss the relative riskiness of the three firms' earnings using their respective coefficients of variation. Do not round intermediate calculations. Round your answers to two decimal places. CV A B C The most risky firm is .A firm’s sustainable growth rate can be calculated using the formula Sustainable growth rate = (p(S/A)(1 + D/E) x R) / [1 – (p(S/A)(1 + D/E) x R)] Discuss the relationship between sustainable growth rate and each of the four variables in the above formula
- Two projects, A and B, are analyzed using ranking present worth analysis with MARR at i%. It is found that PW(A) > PW(B). If MARR is changed to (i + 1)%, what will be the relationship between PW(A) and PW(B)? a. PW(A) > PW(B) b. PW(A) = PW(B) c. PW(A) < PW(B) d. Cannot be determined without the cash flow profiles.Consider an economy with two types of companies, S and I. The profits of companies S always move together, but the profits of companies I move independently of each other. For both firms, there is a 70% probability that the firm's return is 30%, and a 30% probability that the return is -30%. The standard deviation of an individual company's return is closest to the value: Choose one: A.23.0% B.5.25% C.15.0% D.10.0% Only typed answerYou are looking to purchase Company A. Your projections for the EBITDA of Company A are as follows: EBITDA $21.51 Year 1 $2.0 O $19.77 $21.78 Your cost of capital is 20%. Your investment banker shows you the EBITDA multiples for the following comparable companies: Company x 5.0x Company y 5.50x Company z 6.0x Year 2 $3.0 Given the above information what is the price that you would like to offer to Company A shareholders? Not enough information Year 3 $3.5 None of the above Year 4 $4.0 Year 5 $5.0