10. A project has the following cash flows: Year Cash Flow 0 $ 43,500 1 −22,500 2 −33,500 a. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the NPV of this project, if the required return is 12 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV of the project if the required return is 0 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the NPV of the project if the required return is 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
please answer both questions correctly:
10.
| A project has the following cash flows: |
| Year | Cash Flow |
|---|---|
| 0 | $ 43,500 |
| 1 | −22,500 |
| 2 | −33,500 |
| a. |
What is the |
| b. | What is the NPV of this project, if the required return is 12 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| c. | What is the NPV of the project if the required return is 0 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| d. | What is the NPV of the project if the required return is 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
11.
|
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: |
| Year | Cash Flow |
|---|---|
| 0 | −$ 1,200,000 |
| 1 | 375,000 |
| 2 | 440,000 |
| 3 | 335,000 |
| 4 | 290,000 |
|
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. If Anderson uses a required return of 9 percent on this project, what are the NPV and IRR of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR as a percent.) |
|
NPV=? IRR= %? |
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