Tomb-zapper plc manufactures computer video games. It is considering whether to expand production at its existing site i

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Tomb Zapper Plc Manufactures Computer Video Games It Is Considering Whether To Expand Production At Its Existing Site I 1 (57.28 KiB) Viewed 67 times

Tomb-zapper plc manufactures computer video games. It is considering whether to expand production at its existing site in 'Silicon Glen' in Scotland, or to start production at a green field site in China, where labour costs are considerably lower than in Europe. The internal rates of return (IRR) for each project depend on average rates of growth in the world economy over the ten-year life span of the project These are expected to be as follows: World growth Probability IRR China Rapid IRR Scotland 0.5 50% Stable 8% 0.4 20% 12% Slow 0.1 10% 20% Tomb-zapper wants to exploit the less than perfect correlation between the returns from the two projects, without over-committing itself to the China investment The expected return on the Chinese project is % (round to one decimal place) The expected return on the Scottish project is % (round to one decimal place) The standard deviation of the return on the Chinese project is % (round to one decimal place) The standard deviation of the return on the Scottish project is % (round to one decimal place) If the investment portfolio weighting is 75% in Scotland and 25% in China, the expected return on the portfolio is % (round to one decimal place).