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"Ormsbee Aviation, Inc., is considering two potential investments. Each project will cost $70,000 and have an expected life of five years.

This question was answered on Nov 02, 2011. View the Answer
"Ormsbee Aviation, Inc., is considering two potential investments.
Each project will cost $70,000 and have an expected life of five
years. The CFO has estimated the probability distributions for each
project’s cash flows as shown in the following table.
Probability Project 1 Project 2
25% $15,000 $12,000
50% 25,000 30,000
25% 35,000 48,000
The company believes that the probability distributions apply to each year of the five years of
the projects’ lives. Ormsbee Aviation uses the risk-adjusted discount rate technique to evaluate
potential investments. As a guide for assigning the risk premiums, the CFO has put together the
following table based on the coefficient of variation.
Coefficient of Variation Risk Premium
0.00 -2.00%
0.20 0.00%
0.30 2.00%
0.40 3.00%
0.50 4.00%
. Using the appropriate discount rates, calculate the payback period, discounted payback period, NPV, PI, IRR, and MIRR for each project
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This question was asked on Oct 30, 2011 and answered on Nov 02, 2011.

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