An all-equity firm is considering the following projects: Project Beta IRR W .83 9.4% .92 11.6 1.09 12.9 1.35 14.1 Y The T-bill rate is 4 percent, and the expected return on the market is 12 percent. a. Compared with the firm's 11 percent cost of capital, Project W has a expected return, Project X has a expected return, Project Y has a expected return, and Project Z has a expected return. Project X should be b. Project W should be and Project Z Project Y should be should be

An all-equity firm is considering the following projects: Project Beta IRR W .83 9.4% .92 11.6 1.09 12.9 1.35 14.1 Y The T-bill rate is 4 percent, and the expected return on the market is 12 percent. a. Compared with the firm's 11 percent cost of capital, Project W has a expected return, Project X has a expected return, Project Y has a expected return, and Project Z has a expected return. Project X should be b. Project W should be and Project Z Project Y should be should be

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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A project under consideration has an internal rate of return of 17% and a beta of 0.5. The risk-free rate is 9% and the expected rate of return on the market portfolio is 17%. A. What is the required rate of return on the project? B. Should the project be accepted? C. What is the required rate of return on the project if the beta is 1.50? D. If projects beta is 1.50, should the project be accepted?
A project under consideration has an internal rate of return of 14% and a beta of 0.6. The risk-free rate is 99%, and the expected rate of return on the market portfolio is 14%. a-1. Calculate the required return. Required return 96
Question Sun Plc has been specially formed to undertake two investment opportunities. The risk and return characteristics of the two projects are shown below: X Y Expected Return 10% 20% Risk (standard deviation) 4% 7% Sun plans to invest 60% of its available funds in Project X and 40% in Project Y. The directors believe that the correlation coefficient between the returns of the projects is +0.18. Required: i. Calculate the expected return from the proposed portfolio of Projects X and Y. ii. Calculate the risk of the portfolio and comment upon your result in the context of the risk reduction effect of diversification. iii. How could Sun Plc invest its funds in order to obtain a minimum-risk portfolio? -----
Suppose the market risk premium is 6.7% and the risk-free interest rate is 4.9%. Calculate the cost of capital of investing in a project with a beta of 1.3. Question content area bottom Part 1 The cost of capital is enter your response here%. (Round to two decimal places.)
You have assigned the following values to these three firms: Upcoming Dividend $0.50 Estee Lauder Kimco Realty Nordstrom Price $36.00 75.00 11.00 1.58 2.00 Estee Lauder required return Kimco Realty required return Nordstrom required return Assume that the market portfolio will earn 17.20 percent and the risk-free rate is 8.20 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) CAPM Growth 11.40% 17.00 8.80 % % % Beta 0.92 1.28 1.24 Constant-Growth Model % % %
The risk-free rate is 7%. The expected rate of return on the stock market (S&P500) is 10%. What is the appropriate cost of capital for a project that has a beta of -0.2? Use CAPM formula. Select one: a. Cost of capital = 7.2% b. Cost of capital = 11% c. Cost of capital = 6.4% d. Cost of capital = 12%
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 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow: −$7,100 $1,000 $2,200 $1,400 $1,400 $1,200 $1,000 Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Should it be accepted or rejected?multiple choice accepted rejected
10. A firm is considering an investment opportunity. At a discount rate of 10%, the project has a positive net present value (NPV) of £3,548 and at a discount rate of 15%, it has a negative NPV of £7,989. The firm’s cost of capital is 8%. What is the internal rate of return (IRR) of the project? a. 13.5% b. 11.5% c. 8.0% d. 12.5%
(Capital Asset Pricing Model) Johnson Manufacturing, Inc., is considering several investments. The rate on Treasury bills is currently 7.5 percent, and the expected return for the market is 10.5 percent. What should be the expected rate of return for each investment (using the CAPM)? Security A B C D Beta 1.62 1.02 0.71 1.34 a. The expected rate of return for security A, which has a beta of 1.62, is%. (Round to two decimal places.)
How can stock repurchases help a company operate in accordancewith the residual distribution model?
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Beta of a project. Magellan is adding a project to the company portfolio and has the following information: the expected market return is 10.8%, the risk-free rate is 2.5%, and the expected return on the new project is 14.4%. What is theproject's beta? What is the project's beta? (Round to three decimal places.)

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