Office of Business Administration tells you that Villa Apartment has a project to expand the current operations and the estimated internal rate of return is 12.2%. The Villa Apartment's WACC is 11.8%. Based on all of these, you can safely conclude the: O appropriate discount rate for the project is between 11.8% and 12.2%. O expansion should be undertaken as it has a positive net present value. O project has slightly more risk than the firm's current operations. O project will have a lower debt-equity ratio than the firm's current operations.

Office of Business Administration tells you that Villa Apartment has a project to expand the current operations and the estimated internal rate of return is 12.2%. The Villa Apartment's WACC is 11.8%. Based on all of these, you can safely conclude the: O appropriate discount rate for the project is between 11.8% and 12.2%. O expansion should be undertaken as it has a positive net present value. O project has slightly more risk than the firm's current operations. O project will have a lower debt-equity ratio than the firm's current operations.

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

See similar textbooks

Similar questions

Suppose you are considering a project with an initial investment of $500,000. This project has an estimated net present value (NPV) of $750,000. How would you explain the meaning of the $750,000 net present value (NPV) to a nonfinancial manager? O The positive NPV indicates this project is expected to increase the value of the firm by $250,000. The positive NPV indicates this project is expected to increase the value of the firm by $750,000. The project benefits outweigh the costs by $250,000 on a present value basis. O The project benefits outweigh the costs by $500,000 on a present value basis.
USE EXCEL TO SHOW FORMULAS Elizabeth Corporation is starting two new projects. Project A requires an investment of $5,000, has expected return of 16% with standard deviation 14%. Project B has initial investment of $15,000, expected return of 15% with standard deviation 10%. The correlation coefficient between the projects is 0.75. 1- Find the expected return, in dollars, of the portfolio of these two projects. 2- What is the probability that this return is less than $4,000?
Mike Riskless is considering two projects. He has estimated the IRR for each under three possible scenarios and assigned probabilities of occurrence to each scenario. State of Economy Probability Estimated BTIRR Investment I Estimated BTIRR Investment II Optimistic 0.20 0.15 0.20 Most likely 0.60 0.10 0.15 Pessimistic 0.20 0.05 0.05 1.00 Riskless is aware that the pattern of returns for Investment II looks very attractive relative to Investment I; however, he believes that Investment II could be more risky than Investment I. He would like to compare the two investments considering both the risk and return on each. Required: a. Compute BTIRR under each of the three possible scenarios. b. Compute variance and standard deviation of the IRRs.
A number of investment projects are under consideration at your company. You've calculated the cost of capital based on market values and rates, and analyzed the projects using IRR and NPV. Several projects are marginally acceptable. While watching the news last night you learned that most economists predict a rise in interest rates over the next year. Should you modify your analysis in light of this information? Why?
LEI has the following investment opportunities that are average-risk projects for the firm: Project A B C D E Cost at t = 0 $10,000 20,000 10,000 20,000 10,000 Rate of Return 16.4% 15.0% 13.2% 12.0% 11.5% Which projects should LEI accept? Why?
Below are four cases that you will have to solve using Excel spreadsheets. 1st case The company COMERCIAL SA has two investment alternatives that present the following information: PROJECT A B It is requested Initial investment. $25,000 $22,000 Cash flows year 1 1. Determine the internal rate of return. 2. Determine the present value. $7,000 $12,000 The discount rate for the project will be 10% and the MARR will be 20%. 3. Determine the recovery period. 4. Define which is the most viable project. Year 2 cash flows $15,000 $8,000 Year 3 cash flows $18,000 $12,000
1. Calvulate the internal rate of return(IRR) of each project and based on this criterion. Indicate which project you would recommend or acceptance.
The risk-free rate of a capital-budgeting project a company wants to undergo is 5% and the expected market rate of return is 10%. The company has a beta of 0.3 and the project being evaluated has risk equal to the average project that the company has accepted in the past. Using the IRR method, determine an appropriate hurdle rate according to CAPM.
You are interested in investing in an office building. You expect the building's net operating income will grow at a constant rate of 4.5% per year during your anticipated holding period. If you are confident that you can earn 10.7% annual return somewhere else on projects of comparable risk, the reasonable cap rate for you to use in evaluating this building should be %? Write your answer without %. E.g. if you answer is 21.5%, just write 21.5
Pronto Email service has a beta of 0.95 and a cost of equity of 11.9 percent. The risk-free rate of return is 2.8 percent. The firm is currently considering a project that has a beta of 1.03 and a project life of 6 years. What discount rate should be assigned to this project? a. 13.33% b. 13.84% c. 12.67% d. 13.62%
ABC Inc. has a WACC of 8% and is presented with a normal project (with the same risk as the firm's overall operations) with an internal rate of return of 10%, should it accept the project? A. No; The IRR of the project is greater than the project cost of capital. B. Yes; The IRR of the project is less than the project cost of capital. C. No; The IRR of the project is less than the project cost of capital. D. Yes; The IRR of the project is greater than the project cost of capital.
2. A firm considers investing in a project. In Year 0 it needs to make an investment of $50,000. If it is expected to earn $50,000, $60,000, $70,000 in years 1,2,3 respectively, decide whether the firm should make the investment. Consider the required rate of return of 8%. You may use xis to make calculations. Make recommendations for both cases.

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS