A company has a project with initial investment is $40,000. It will generate $15,000 annually for the nextfour years. Assume that this company and its project have a beta of 2.0, the risk-free rate of return (i.e., Ris 296, and the market return (Le., R is 796?. How much is the NPV of this project? [Hint: As discussed, theCAMP model can be used to estimate discount rate (r) in the NP analysis equation].A)5,555B)3,333C)4,444D)6,666

Financial management consists of directing, planning, organizing and controlling of financial…

A company has a project with initial investment is $40,000. It will generate $15,000 annually for the next four years. Assume that this company and its project have a beta of 2.0, the risk-free rate of return (i.e., R is 256, and the market return (Le., R is 796?. How much is the NPV of this project? [Hint: As discussed, the CAMP model can be used to estimate discount rate (n in the NPV analysis equation). 5,555 B) 3.333 C) 4,444 D) 6,666

A company has a project with initial investment is $40,000. It will generate $15,000 annually for the next four years. Assume that this company and its project have a beta of 2.0, the risk-free rate of return (i.e., R is 256, and the market return (Le., R is 796?. How much is the NPV of this project? [Hint: As discussed, the CAMP model can be used to estimate discount rate (n in the NPV analysis equation). 5,555 B) 3.333 C) 4,444 D) 6,666

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: Cash flow: 0 2 3 4 5 -$5,400 $1,600 $2,800 $2,000 $2,000 $1,800 Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) 6 $1,600
You are considering opening a new plant. The plant will cost $95.1 million up front and will take one year to build. After that it is expected to produce profits of $31.8 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 7.6%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. The NPV of the project will be $ million. (Round to one decimal place.)
Consider an economy with three states which occur with probability (0.2, 0.2, 0.6). Suppose a firm has a project which generates the state dependent cash flows (100, 240, 220) at t=1. The investment costs are 170 at t=0. The firm has 170 at t=0. The market portfolio generates the payoff (200, 230, 260) and has an expected return of 10%. The risk free rate is 2%. Suppose the CAPM holds. (a) What is the beta of this project? (b) What is the net present value of the project? Explain whether the firm should conduct the project.
If your investment is growing at 20%, how would you calculate how long it would take to double in size? a)=log(2)/log(1.2) b) =log(0.2)/log(2) c)=log(2)/log(0.2) d)=log(1.2)/log(2)
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: 1 2 3 4 Cash flow: -$5,000 $1,270 $2,470 $1,670 $1,670 5 6 $1,470 $1,270 Use the Pl decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) PI Should it be accepted or rejected? O rejected O accepted
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow: −$255,000 $61,800 $80,000 $133,000 $118,000 $77,200 Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Should this be Accepted or Rejected
Assume a company is going to make an investment of $300,000 in a machine and the following are the cash flows that two different products would bring in years one through four. The company's required rate of return is 12%. What is the NPV for Option A? What is the NPV for Option B? What is the IRR for Option A? What is the IRR for Option B? PLEASE NOTE #1: The dollar amounts will be with "$" and commas as needed and rounded to two decimal places (i.e. $12,345.67). Round your IRR answers, in percentage format, to two decimal places (i.e. 12.34%). Given the above answers, which project should the company invest in? Project . PLEASE NOTE #2: Your answer is either "A" or "B" - capital letter, no quotes.
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I am considering a project with free cash flows in one year of €200,000 or €250,000 with equal probability. The cost of the project is $180,000. The project’s cost of capital is 12% and the risk-free rate is 4%. What is the NPV of the project? If the project is financed by all equity, what is the initial market value of the unlevered equity? If the project is financed with 50% debt (at the risk-free rate), what is the expected return on the levered equity?
14) A company is considering a project in Chile. The beta for Chile is 1.1. The firm has an equity beta of 1.10 and a value of 2000M and debt of 500M and cash and marketable securities of 100M. If the risk- free rate is 2% and the GRP is 6%, what is the proper cost of capital for the project in Chile?
A typical telecom satellite costs $250 million. The launch with an Ariane rocket costs another $220 million. (Obviously, you need both.) Rockets have a beta of 0.5 and tend to break up during launch with about 20% probability. Telecom services have a beta of 1.5. Assume a CAPM with an equity premium of 3% and a risk-free rate of 2%. Assume an inflation rate of 1.5% per annum. Assume that a successfully launched satellite will last exactly 10 years and expects to yield a constant $100 million in revenue per year. Should you launch?

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