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If you had to pick three commonly calculated ratios to analyze the
financial health of a company, which would you analyze? Why would
you choose those ratios?
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FIN 486 Week 2 Individual Assignment (Chapter 5,
Chapter 8)
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FIN 486 Week 2 Individual Assignment (5-1,5-4,5-5,5-8,5-10,5-17,5-
21,P8-3,P8-4,P8-9,P8-10,P8-13,P8-24,P8-25,P8-26) P8–3 Risk
preferences Sharon Smith, the financial manager for Barnett
Corporation, wishes to evaluate three prospective investments: X, Y,
and Z. Sharon will evaluate each of these investments to decide
whether they are superior to investments that her company already
has in place, which have an expected return of 12% and a standard
deviation of 6%. The expected returns and standard deviations of the
investments are as follows: a. If Sharon were risk neutral, which
investments would she select? Explain why. b. If she were risk averse,
which investments would she select? Why? c. If she were risk
seeking, which investments would she select? Why? d. Given the
traditional risk preference behavior exhibited by financial managers,
which investment would be preferred? Why? Investment Expected
return Standard deviation X 14% 7% Y 12 8 Z 10 9 P8–4 Risk
analysis Solar Designs is considering an investment in an expanded
product line. Two possible types of expansion are being considered.
After investigating the possible outcomes, the company made the
estimates shown in the following table. Expansion A Expansion B
Initial investment $12,000 $12,000 Annual rate of return Pessimistic
16% 10% Most likely 20% 20% Optimistic 24% 30% a. Determine
the range of the rates of return for each of the two projects. b. Which