Nissota, a Japanese-based car manufacturer, is evaluating two overseas locations for a proposed expansion of production facilities at a site in Ireland and another on Humberside. The likely future...

Nissota, a Japanese-based car manufacturer, is evaluating two overseas locations for a proposed expansion of production facilities at a site in Ireland and another on Humberside. The likely future return from investment in each site depends to a great extent on future economic conditions. Three scenarios are postulated, and the internal rate of return from each investment is computed under each scenario. The returns with their estimated probabilities are shown below:

There is zero correlation between the returns from the two sites.

Required

(a) Calculate the expected value of the IRR and the standard deviation of the return from investment in each location.

(b) What would be the expected return and the standard deviation of the following split investment strategies:

(i) committing 50 per cent of available funds to the site in Ireland and 50 per cent to Humberside?

(ii) committing 75 per cent of funds to the site in Ireland and 25 per cent to the Humberside site?