ASSIGNMENT — RIsk MANAGEMENT Question 4 Determine the risk adjusted net present value ofthe following projects: x y Zz Net cash outlays (Rs.) 2,10,000 1,00,000 Project ite S years 5 years S years ‘Annual Cash inflow (Rs.} 70,000 42,000 30,000 Coefficient of variation 12 08 04 Risk Adj. Rate of Return 18% 14% 12% P.V. Factor 1 5 years 3.274 3.433 3.605 Question 2 XYZ PLC employs certainty-equivalent approach in the evaluation of risky investments. The finance department of the company has developed the following information regarding a new project: Expected CFAT (€ 200,000) £ 160,000 2 £140,000 3 £ 130,000 4 £ 120,000 6 £80,000 Year 0 (initial Outlays) | 1 Certainty-equivalent quotient 1.0 | 08 07 0.6 04 0.3 The firm's cost of equity capital is 18%; its cost of debt is 9% and the riskless rate of interest in the market on the treasury bonds is 6%. Should the project be accepted? Question 3 The following information applies fo @ new project Initial Investment Selling price per Unit Variable costs per unit Fixed costs for the period Sales volume Life Discount rate Rs. 125,000 Rs. 100 Rs. 30 Rs. 100,000 2,000 units 5 years 10% Required: Project's NPV and show how sensitive the results are fo various input factors. Question 4 XYZ Ltd. is considering a project ‘A’ with an inital outlay of Rs. 14,00,000 and the possible three cash inflow attached with the project as follows: Worst case Most likely Best case (Rs.000) ‘Assuming the cost of capital as 9%, determine whether project should be accepted or not.Question 5 The VAR on a portfolio using a one-day time horizon is Rs. 100 crore. What is the VAR using a 10 day horizon? Question 6 Ifthe daily VAR is Rs. 1,25,000, calculate the weekly, monthly, semiannual and annual VAR, Assume 250 days and 50 weeks per year. Question 7 ‘Nee! holds Res. 1 crore shares of XY Lid, whase market price standard deviation is 2% per day. Assuming 252 trading days in a year, determine maximum loss level over the period of 1 trading day and 10 trading days with 99% confidence level. Assuming share prices are normally for level of 99%, the equivalent Z score from Normal table of Cumulative Area shall be 233. Question 8 Consider a portfolio consisting of a Rs. 200,00,000 investment in share XYZ and a Rs. 200,00,000 investment in share ABC. The daily standard deviation of both shares is 1%6 and that the coefficient of correlation between them is 0,3. You are required {0 defermine the 10-day 99% value at risk forthe portfolio? Note: Please note Q. No. 1-4 does not form the part of the Syllabus of the paper Strategic Financial Management (New Scheme). These questions shall be discussed in the class only for reference purpose.