FINA corp is considering a project to expand its business into auto parts. The project has an initial cost of 10 million, a cash flow of 2 million, and a growth rate of 5% per year. The last cash flow from this project happens in the sixth year. What is the NPV of the project? If FINA is to enter kitchen appliances market, which firm should be used as reference to calculate the cost of capital? - Only A - Only B - FINA - A, B, and C - Only C
FINA corp is considering a project to expand its business into auto parts. The project has an initial cost of 10 million, a cash flow of 2 million, and a growth rate of 5% per year. The last cash flow from this project happens in the sixth year. What is the NPV of the project? If FINA is to enter kitchen appliances market, which firm should be used as reference to calculate the cost of capital? - Only A - Only B - FINA - A, B, and C - Only C
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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FINA corp is considering a project to expand its business into auto parts. The project has an initial cost of 10 million, a cash flow of 2 million, and a growth rate of 5% per year. The last cash flow from this project happens in the sixth year. What is the
If FINA is to enter kitchen appliances market, which firm should be used as reference to calculate the cost of capital?
- Only A
- Only B
- FINA
- A, B, and C
- Only C
Transcribed Image Text:FINA Corp. is considering a new project, which is to enter a new industry of kitchen appliances. FINA Corp's beta without the
new project is 1.2. The market risk premium is 7%. The risk-free rate is 3%. The total shares outstanding of FINA is 20 million.
The stock price now is $5 per share. The tax rate is 35%. The following three firms are in the new industry that FlINA wants to
enter. Firm A is a competitor of FINA in auto parts. Firm A also has a division in kitchen appliances. Firm B is producing kitchen
appliances and all kinds of furniture. Firm C is in the kitchen appliances business only. The Beta of firms A, B, and C are 0.9, 1.1,
1.5, respectively.
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