Consider the following data:At the start of 2024 (January 2024)Expected Risk Free Rate for 2024 4.00%Expected market rate of return 6.25%Company projectsProject A Project B Project C Project D Your projectBeta 3.17 4.75 5.95 2.03 1.83Project Managers' Projected 2024 returns, % 8.00% 10.90% 12.00% 8.00%(a) You only have 1 hour left before presenting to the senior management team on your own projections for your project. Objectively (aka, empirically-justifiably) what should be your forecast for your project return?(b) Suppose after all managers reported their forecassts, your company CFO informed the entire team that she now expects the risk freerate to fall to 2.75% in 2024, and that market risk premium is expected to be 1.25 %, while your company market risk premium is1.75%. Given the forecasts produced by you and other project managers are as stated in part (a), which project managers should beupdating ther CV?

Using the Capital Asset Pricing Model (CAPM) to answer your questions.Given:- Risk-free rate for…

Answered: Consider the following data: At the…

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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What is the expected NPV of the following decision tree? The net flow and associated probability is shown above and below each branch for the two-year project. a. -R18.72m b. -R5.56m c. R5.00m d. R16.12m
An all-equity firm is considering the projects shown below. The T-bill rate is 3 percent and the market risk premium is 8 percent. Project Expected Return Beta A 8% 0.6 B 20 1.3 C 14 1.5 D 18 1.7 Calculate the project-specific benchmarks for each project. (Round your answers to 2 decimal places.) Project A: ____.__% Project B: ____.__% Project C: _____.__% Project D: ____.__% If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s), will be incorrectly accepted? Project A Project B Project C Project D
You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2018-2021 Year Asset F Asset G Asset H 2019 5 12 12 2020 10 9 7 2021 13 21 4 2022 6.5 6 10.5 Using these assets, you have isolated the three investment alternatives shown in the following table. Alternative Investment 1 100% of asset G 2 40% of asset F and 60% of asset G 3 50% of asset F and 50% of asset H Calculate the expected return over the 4-year period for each of the three alternative Calculate the standard deviation of returns over the 4-year period for each of the three alternatives. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives. On the basis of your findings, which of the three investment alternatives do you recommend? Why?
You are considering investing in a project with the following possible outcomes: State of the Economy Boom Normal Probability of State Occurring 30% 60% 10% Investment Returns 22% 10% Recession -8% Calculate the expected rate of return and standard deviation of returns for this investment, respectively. 13.3%, 8.51% O 11.8%, 0.72% 11.8%, 8.51% 13.3%, 0.72%
Michael We have created various scenarios each with a forecast for our expected sales volume, revenues, expenses, risks, etc. At a high level, here are how each of the scenarios looks like. Calculate NPV for Scenario A. Use the information provided on the right. Round to the nearest whole number. Scenario Comparison ($) Scenario A Scenario B Scenario C Initial Investment 2,000,000 2,000,000 2,000,000 Expected interest rate: 12% Forecasting period: 5 years PV annuity factor: 3.6048 Annual Net Income 545, 100 426,995 1,644,385 Annual Cash Flow 648,050 -493,005 2,564,385 NPV -3,777,184 7,244,095
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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: Cash flow: 0 1 3 4 -$233,000 $65,600 $83,800 $140, 800 $121,800 MIRR Use the MIRR decision rule to evaluate this project. Note: Do not round intermediate calculations and round your final answer to 2 decimal places. 5 $81,000 %
The service division of Martinez Industries reported the following results for 2022. Sales Variable costs Controllable fixed costs Average operating assets $480,000 288,000 60,000 600,000 Management is considering the following independent courses of action in 2023 in order to maximize the return on investment for this division. 1. Reduce average operating assets by $120,000, with no change in controllable margin. 2. Increase sales $96,000, with no change in the contribution margin percentage.
Firm X is considering a project and its analysts have projected the following outcomes and their probabilities. Outcome Probability of Outcome Assumptions $ 4,600 30% pessimistic $ 7,800 45% moderately successful $ 13,500 25% optimistic What is the expected value of the outcomes?
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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: Cash flow: 1 2 -$236,000 $65,900 $84,100 $141,100 $122,100 $81,300 Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) IRR % Should it be accepted or rejected? O rejected accepted
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