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hello
in question B) of the above question asks to calculate the value at risk at 95% confidence level. and the value at risk of the present value calculates to be: 1,471,000.
however in the answer it says that NPV will still be positive.
my question is if we minus the initial investment of 11,840,000 from this 1,471,000 then how is the NPV still positive? will not be negative?
if it is positive then probably i am not interpreting the result obtained from value at risk correctlyIt is the returns that are at risk, not the initial investment which is certain.
Therefore there is a 5% change of the present value of the returns falling by 1,471,000, and if the PV of the receipts falls by this amount then the NPV (which is currently 2,293,000) will also fall by this amount but here will still be positive.
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