The cash-flow forecasta (in millions of dollara) for the project are as PS #1 Type B: You are a consultant to a firm evaluating an expansion of its current business. follows. Year 0: initial outlay of£ 120, Years 1 to 10: 16 each year. On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.5. Assuming that the rate of return available on risk-free investment is 4 and that the expected rate of return on the market portfolio is 124, what is the (risk-adjusted) net present value of the project?

The cash-flow forecasta (in millions of dollara) for the project are as PS #1 Type B: You are a consultant to a firm evaluating an expansion of its current business. follows. Year 0: initial outlay of£ 120, Years 1 to 10: 16 each year. On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.5. Assuming that the rate of return available on risk-free investment is 4 and that the expected rate of return on the market portfolio is 124, what is the (risk-adjusted) net present value 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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You are a consultant to a firm evaluating an expansion of its current business. The annual cash flow forecasts (in millions of dollars) for the project are Years 0 1 10 NPV Annual Cash Flow -95 17 Based on the behaviour of the firm's stock, you believe that the beta of the firm is 1.5. 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? (Enter your answers in millions Round your answer to 2 decimal places. Use minus sign to enter negative answers, if any.) million
WINNER plans to invest in one of two stocks, each of which requires the same initial investment. The estimated return (cash flow) of these investments for the next year depends on economic conditions and their respective possibilities. State of Economy Probability Rate of Return Stock A Stock B Boom 0.15 0.30 0.25 Normal 0.55 0.12 0.08 Recession 0.30 0.01 -0.05 i) Compute expected rate of return for each asset. ii) Compute variance and standard deviation of rate of return for each asset. iii) Which asset should they purchase?
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
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The expected return for the investment is ??? The standard deviation is ??? While the expected return for the risk-free assets, Treasury Bills, is ??? The standard deviation is ???
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