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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Question
Transcribed Image Text:You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the
project are as follows:
Years
Cash Flow
100
1-10
14
On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.41. Assuming that the rate of return available
on risk-free investments is 5% and that the expected rate of return on the market portfolio is 13%, what is the net present value of the
project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in
millions of dollars rounded to 2 decimal places.)
Net present value
million
Expert Solution
Step 1
Introduction:
Net present value is one of the capital budgeting methods used by companies to decide on accepting or rejecting a project. The company may proceed with the project if the NPV is positive & may reject for a negative NPV.
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