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A company is considering an investment in two different expansions. The following estimates have been calculated for each project. X
A company is considering an investment in two different expansions. The following estimates have been calculated for each project.
X Y
Initial Investment 15,000 15,000
Annual Rate of Return
Pessimistic 16% 10%
Most Likely 20% 20%
Optimistic 24% 30%
- What is the range of the rates of return for each of the projects?
- Which project is less risky? Why?
- Which investment would you choose? Why?
- What does your investment choice say about your feelings towards risk?
- Assume that expansion Y most likely outcome is 21% per year and that all other facts remain the same. Does this change your investment choice answer? Why?
- What are the ethical considerations that the company's managers should observe when deciding between the two projects?
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