Chapter 3

Q. 3.PP.40

Q. 3.PP.40

Determine the risk-adjusted NPV of the following projects, whose relevant data are given below.
The company selects the risk-adjusted rate of discount on the basis of the coefficient of variation.

C B A Projects
 2,10,000 1,20,000 1,00,000 Net cash outlays (Rs)
              5               5              5 Project life (years)
   70,000    42,000   30,000 Annual cash inflow
                   0.12                   0.8                  0.4 Coefficient of variation
Risk-adjusted\>rate\>of\>discount Coefficient\>of\>variation
10                       0
12                           0.4
14                           0.8
16                           1.2
18                           1.6
22                        2
25 More than    2

Step-by-Step

Verified Solution

Determination \>of\> expected \>NPV
NPV Cash\>outlays Total\>PV PV\>factor Risk-adjusted
rate\>of\>discount		 CFAT Project
Rs 8,150 Rs 1,00,000 Rs 1,08,150 3.605 12 Rs 30,000 A
24,186      1,20,000       1,44,186 3.433 14      42,000 B
19,180      2,10,000      2,29,180 3.274 16      70,000 C