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Sky Fly, Inc is considering an investment in two different expansions. The following estimates have been calculated for each project.
X Y
Initial Investment 15,000 15,000
Annual Rate of Return
Pessimistic 16% 10%
Most Likely 20% 20%
Optimistic 24% 30%
Discuss
What is the range of the rates of return for each of the projects?
Which project is less risky? Why?
Which investment would you choose? Why?
What does your investment choice say about your feelings towards risk?
Assume that expansion Y most likely outcome is 21% per year and that all other facts remain the same. Does this change your investment choice answer? Why?
What are the ethical considerations that Sky Fly’s managers should observe when deciding between the two projects?
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