Answer to Question #127736 in Management for kgothatgso

Question

Economic growth (annual average)
Probability of occurrence
Project 1 Project 2 Existing investments
Zero 0,3 14 8 6 3% 0,4 10 16 12 6% 0,3 8 22 16 Book value R5m R5m R10m Market value R5m R5m R15m


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The division manager has requested the accountant to determine which of the two projects should be accepted using the portfolio theory to make the selection.
Required: 1. Using the above information, calculate which investment Bean Ltd should select in line with the portfolio theory (expected value and standard deviation). (20 Marks)
2. Identify and describe the kind of risk the management of Bean Ltd wishes to spread by investing in different investments and state whether they should be concerned about reducing such risk.

Answer 1

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