FIN/419 Week 2-Assignments from Readings

Week 2-Assignments from Readings
Chapter 5: Problem 5.3
a. If Sharon were risk-indifferent, which investments would she select? Explain why.

1. If she were risk-averse, which investments would she select? Why?
2. If she were risk-seeking, which investments would she select? Why?
3. 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.

1. Which project is less risky? Why?
2. If you were making the investment decision, which one would you choose? Why? What does this imply about your feelings toward risk?
3. 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.

1. Do parts a and b provide consistent views of the two projects? Explain.
2. Which project do you recommend? Why?