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FIN 419 Week 2 Assignments From Readings

This file of FIN 419 Week 2 Assignments From Readings consists of:

Chapter 5: Problem 5.3

a. If Sharon were risk-indifferent, which investments would she select? Explain why.

b. If she were risk-averse, which investments would she select? Why?

c. If she were risk-seeking, which investments would she select? Why?

d. Given the traditional risk preference behavior exhibited by financial managers, which investment would be preferred? Why?

Chapter 5: Problem 5.4

a. Determine the range of the rates of return for each of the two projects.

b. Which project is less risky? Why?

c. If you were making the investment decision, which one would you choose? Why? What does this imply about your feelings toward risk?

d. Assume that expansion B’s most likely outcome is 21% per year and that all other facts remain the same. Does this change your answer to part c? Why?

Chapter 10: Problem 10.4

a. Determine the range of annual cash inflows for each of the two projects.

b. Assume that the firm’s cost of capital is 10% and that both projects have 20-year lives. Construct a table similar to this for the NPVs for each project. Include the range of NPVs for each project.

c. Do parts a and b provide consistent views of the two projects? Explain.

d. Which project do you recommend? Why?

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