Task1. Solar Designs is considering an investment in an extended product line. Two probable types of expansion are being considered. After investigating the probable outcomes, the company made the estimates. Expansion A Expansion B Initial investment $12,000 $12,000 Annual rate of return Pessimistic 16% 10% Most likely 20% 20% Optimistic 24% 30%
a. Find out the range of the rates of return for each of the two projects.
b. Which project is less hazardous? Why?
c. If you were making the investment decision, which one would you select? Why? What does this imply about your feelings toward risk?
d. Suppose that expansion B’s most likely outcome is 21% per year and that all other facts remain the same. Does this change your answer to part c? Why?