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  • Project Risk Hillier

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    Chiradeep Sen
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    This document provides a description of a 3-year project with initial outlay of Rs. 10 million and cash inflows in each of the 3 years that have different values and probabilities. It asks to calculate the NPV and SD of NPV of the project assuming a cost of capital of 10% and also find the probability that the project NPV will be Rs. 1 million or above under the assumptions that the cash flows are independent and perfectly correlated.

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    This document provides a description of a 3-year project with initial outlay of Rs. 10 million and cash inflows in each of the 3 years that have different values and probabilities. It asks to calculate the NPV and SD of NPV of the project assuming a cost of capital of 10% and also find the probability that the project NPV will be Rs. 1 million or above under the assumptions that the cash flows are independent and perfectly correlated.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    3 views1 page

    Project Risk Hillier

    Uploaded by

    Chiradeep Sen
    This document provides a description of a 3-year project with initial outlay of Rs. 10 million and cash inflows in each of the 3 years that have different values and probabilities. It asks to calculate the NPV and SD of NPV of the project assuming a cost of capital of 10% and also find the probability that the project NPV will be Rs. 1 million or above under the assumptions that the cash flows are independent and perfectly correlated.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    Prob.3. (textbook, p11.

    43)

    A project involves an initial outlay of Rs.10 million and has the following cash inflows in 3 years:

    Year 1 Year 2 Year 3


    CF (Rs. million) Probability CF (Rs. million) Probability CF (Rs. million) Probability
    4 .4 5 .4 3 .3
    5 .5 6 .4 4 .5
    6 .1 7 .2 5 .2

    Calculate the NPV and SD of NPV assuming the cost of capital at 10%. Consider the following two cases
    as independent:
    a. Assume that the case flows are independent, what is the probability that the project will attain
    an NPV of Rs.1 million or above.
    b. Assume that the cash flows are perfectly correlated, what is the probability that the project will
    attain an NPV of Rs.1 million or above.

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