Question 7 The financial manager of O.Biney Ltd is considering investing in a building project costing $200,000. The following cash flows are expected from the project. The beta of the project is 1.25 and the market return is 25%. The risk free rate of return is 14%. Year $ 0 (200,000) 1 40,000 2 45,000 3 92,000 4 95,000 e) What is the expected return/cost of equity on this project? f) GBaidoo Enterprise is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 20% and the cost of equity is as computed in (a), what will be the NPV of the investment? g) What is the IRR for the project? h) Reinvesting at overall cost of capital, what will be the MIRR for the proposed investment? i) What is the payback period of the project and the accounting rate of return? j) What will be your overall advice concerning viability of the project?
Question 7 The financial manager of O.Biney Ltd is considering investing in a building project costing $200,000. The following cash flows are expected from the project. The beta of the project is 1.25 and the market return is 25%. The risk free rate of return is 14%. Year $ 0 (200,000) 1 40,000 2 45,000 3 92,000 4 95,000 e) What is the expected return/cost of equity on this project? f) GBaidoo Enterprise is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 20% and the cost of equity is as computed in (a), what will be the NPV of the investment? g) What is the IRR for the project? h) Reinvesting at overall cost of capital, what will be the MIRR for the proposed investment? i) What is the payback period of the project and the accounting rate of return? j) What will be your overall advice concerning viability of the project?
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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Transcribed Image Text:Question 7
The financial manager of O.Biney Ltd is considering
investing in a building project costing $200,000. The
following cash flows are expected from the project. The beta
of the project is 1.25 and the market return is 25%. The risk
free rate of return is 14%.
Year $
0
(200,000)
1
40,000
2
45,000
3
92,000
4
95,000
e) What is the expected return/cost of equity on this
project?
f) GBaidoo Enterprise is a levered entity with percentage
of debt out of total capital being 40%. If the interest
rate on a bank loan is 20% and the cost of equity is as
computed in (a), what will be the NPV of the
investment?
g) What is the IRR for the project?
h) Reinvesting at overall cost of capital, what will be the
MIRR for the proposed investment?
i) What is the payback period of the project and the
accounting rate of return?
j) What will be your overall advice concerning viability
of the project?
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