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Q-1 Use the net present value -NPV- method of capital budgeting to evaluate the following

project. Should the company accept/reject the project? Why?

Initial outlay (cash outflows)

-40000

Cash inflow

Total Debt

Year 1: $20000

Year 2: $15000

Year 3: $6200

$300000

Cost of debt

7%

Total equity

$500000

Cost of

equity

12%

Q-2 Use the information shown in the table

Economic Condition

Weak

Moderate

Good

Outcome

180

260

340

Probability of outcome

.3

.5

.2

1.1 what is the expected value?

1.2 calculate the variance.

1.3 calculate the standard deviation.

1.4 calculate the coefficient of variation.

Q-3 what is Beta? Calculate the Beta for Extra and SADAFCO companies. Explain your answer

carefully? Which company’s stock is riskier?

Q4- use a line graph to show the stock price for SABIC and SADAFCO with the market index “5

years” then describe the graph and what is your conclusion. In the conclusion, give your opinion

about the correlation and how the company move in comparison to the market index? If they move

together why and if they move inconsistently why? Think about the volatility and beta. In addition,

is it good to invest in both companies to diversify?

project. Should the company accept/reject the project? Why?

Initial outlay (cash outflows)

-40000

Cash inflow

Total Debt

Year 1: $20000

Year 2: $15000

Year 3: $6200

$300000

Cost of debt

7%

Total equity

$500000

Cost of

equity

12%

Q-2 Use the information shown in the table

Economic Condition

Weak

Moderate

Good

Outcome

180

260

340

Probability of outcome

.3

.5

.2

1.1 what is the expected value?

1.2 calculate the variance.

1.3 calculate the standard deviation.

1.4 calculate the coefficient of variation.

Q-3 what is Beta? Calculate the Beta for Extra and SADAFCO companies. Explain your answer

carefully? Which company’s stock is riskier?

Q4- use a line graph to show the stock price for SABIC and SADAFCO with the market index “5

years” then describe the graph and what is your conclusion. In the conclusion, give your opinion

about the correlation and how the company move in comparison to the market index? If they move

together why and if they move inconsistently why? Think about the volatility and beta. In addition,

is it good to invest in both companies to diversify?

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