ECON 5705 ch 2 Brendan O&acirc;€™Neal

# ECON 5705 ch 2 Brendan Oâ€™Neal - b. 1 standard...

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Brendan O’Neal ECON 5705 Chapter 2 Exercises Chapter 2 1. The optimal capital budget would be to invest in projects A, B, C, and G at a total of \$875 million. Any other project selection would only generate a minimal return. 2. a. Annual revenues: 90 (.2) + 75 (.5) + 85 (.3) = \$77,175,000 b. standard deviation: \$96.5 million c. coefficient: V = 96.492063/77.175 = .250 3. Project B appears riskier because of the larger standard deviation. 4. z (0 – 100,000)/40,000), P ( z < -2.50) = .0062 5. Since we are dealing with a normal distribution the expected price is in the middle at about \$1.5 million.

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Unformatted text preview: b. 1 standard deviation = 500,000 c. z = 1.2mil -1.5mil/390,625 = -.77 z = 22.06% 6. Amgen appears to be a high risk firm; past performance tells us this, as does the projected profit performance. Returns may be high, as is risk. Performance projection is also consistent with the high-return possibilities. b. The company’s projected high-return projection is favorable and justified as a result for the high cost of the investors’ risk. If there is no pay off or projection for high profits to justify the risk, there would be no reason for investors to take interest in Amgen....
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## This note was uploaded on 01/30/2011 for the course ECO 5705 taught by Professor Kest during the Spring '10 term at Hodges University.

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ECON 5705 ch 2 Brendan Oâ€™Neal - b. 1 standard...

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