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.6 Nimby plc is considering two mutually exclusive projects: Delphi and Oracle. The possible NPVs for each project and their associated probabilities are as follows: Required: (a) Calculate the expected net present value and the standard deviation associated with each project. (b) Which project would you select and why? State any assumptions you have made in coming to your conclusions. (c) Discuss the limitations of the standard deviation as a measure of project risk. 5.7 Plato Pharmaceuticals Ltd has invested 500,000 to date in developing a new type of insect repellent. The repellent is now ready for production and sale, and the marketing director estimates that the product will sell 150,000 bottles a year over the next five years. The selling price of the insect repellent will be 5 a bottle and variable costs are estimated to be 3 a bottle. Fixed costs (excluding depreciation) are expected to be 200,000 a year. This figure is made up of 160,000 additional fixed costs and 40,000 fixed costs relating to the existing business which will be apportioned to the new product. In order to produce the repellent, machinery and equipment costing 520,000 will have to be purchased immediately. The estimated residual value of this machinery and equipment in five years' time is 100,000. The business calculates depreciation on a straight-line basis. The business has a cost of capital of 12 per cent. Ignore taxation. Required: (a) Calculate the net present value of the product. (b) Undertake sensitivity analysis to show by how much the following factors would have to change before the product ceased to be worthwhile: (i) the discount rate (ii) the initial outlay on machinery and equipment (iii) the net operating cash flows (iv) the residual value of the machinery and equipment

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