Compare the corporate risk of Projects A and B

jagguarpaw January 18, 2017 0 Comments

Question: A. Compare the corporate risk of Projects A and B….

  1. Compare the corporate risk of Projects A and B. (Hint: Use the expected returns in Exhibit 13.1 to create a graph with corporate characteristic lines for Projects A and B. Regression lines can be created using the =INTERCEPT and =SLOPE functions in Excel. The XY (Scatter) chart in Excel is recommended.)
  2. What would happen to the overall risk of MS I if it invests in Project A? Project B?

Investment

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State of                                1-year                                              S&P 500                Equity in

The Economy     probability          T-Bill      Project A             Project B              Fund                      MSI

Poor                      0.1                 7%            -8%                    18%                -15%                      0%

Below average       0.2                 7%             2%                     23%                 0%                        5%

Average                0.4                  7%            14%                    7%                   15%                    10%

Above average      0.2                  7%            25%                    -3%                  30%                    15%

Excellent               0.1                  7%            33%                     2%                    45%                  20%