Question

6. (20 points) Consider the following list of projects (data in millions) $100 S303 S317 S235 S573 $283 S647 $665 12 $1642 $132 S660 $941 Assume that projects 2 and 3 are mutually exclusive and that there is a S600 million budget (a) Find the mean and variance of the present worth for all feasible portfolios. Construct an efficiency frontier. What does it tell you? (b) Use threshold analysis with a minimum present-worth standard of SO and maximum standard deviation of S2 billion, and a maximum payback of 10 (assume that the payback period for a portfolio is the maximum payback period of any project in the portfolio). What projects should be considered? (e) Assume that the criteria of present worth, standard deviation, and payback period are ordered as listed, with ideal values of S2 billion, S125 million respectively. Provide a score for each portfolio and select the best one

Answer 1

Ans B: Project 2 meets the criterion

Ans C: The ratio of Present worth/Std deviation would be the determining factor

Order of ranking: Project P1, 4, 3,2

Proj 1	100	573	5.73
Proj 2	303	283	0.933993
Proj 3	317	647	2.041009
Proj 4	235	665	2.829787