I have developed answers for everything but the last question: What are the ethi
ID: 2332359 • Letter: I
Question
I have developed answers for everything but the last question: What are the ethical considerations that Sky Fly's managers should observe when deciding between the two projects? Please focus on that question.
Sky Fly, Inc is considering an investment in two different expansions The following estimates have been calculated for each project. Initial Investment Annual Rate of Return Pessimistic Most Likely Optimistic 15,000 15,000 16% 20% 24% Discussio 10% 20% 30% G Discuss . What is the range of the rates of return for each of the projects? . Which project is less risky? Why? e 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?Explanation / Answer
1. Project X : Range of rates of return = Optimistic - Pessimistic = 24% - 16% = 8%
Project Y : Range of rates of return = Optimistic - Pessimistic = 30% - 10% = 20%
2. Project X seems to be less risky due to a smaller range of the rate of return and it is more likely to perform better in a pessimistic scenario with a return of 16% vs 10% of Project Y
3 and 4. As the most likely scenario gives the same return of 20%, an investor should be indifferent if one considers this scenario in particular. However, the preference of the project would depend on the risk tolerance/preference of the investor. A risky investor would choose Project Y with greater return/risk, while a risk averse investor would prefer Project X with a limited upside/downside
5. Even if Y provides a 1% more return vis-a-vis Project X, it still does not be an optimal choice as it is still more risky as compared to Project X. Thus, this will again depend on the risk tolerance of the investor as pointed out in the previous answer.
6. The ethical considerations which needs to be considered are:
Hope this helps.