The NPV for the best-case scenario will be $. (Round to the nearest dollar.) The NPV for the worst-case scenario will be $ (Round to the nearest dollar.)
The NPV for the best-case scenario will be $. (Round to the nearest dollar.) The NPV for the worst-case scenario will be $ (Round to the nearest dollar.)
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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Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:(Related to Checkpoint 13.3) (Scenario analysis) Family Security is considering introducing tiny
GPS trackers that can be inserted in the sole of a child's shoe, which would then allow for the tracking of
that child if he or she was ever lost or abducted. The estimates, that might be off by 9 percent (either
above or below), associated with this new product are shown here: E. Since this is a new product
line, you are not confident in your estimates and would like to know how well you will fare if your
estimates on the items listed above are 9 percent higher or 9 percent lower than expected. Assume that
this new product line will require an initial outlay of $1.08 million, with no working capital investment, and
will last for 10 years, being depreciated down to zero using straight-line depreciation. In addition, the
firm's required rate of return or cost of capital is 9.7 percent, and the firm's marginal tax rate is 34
percent. Calculate the project's NPV under the "best-case scenario" (that is, use the high
estimates-unit price 9 percent above expected, variable costs 9 percent less than expected, fixed
costs 9 percent less than expected, and expected sales 9 percent more than expected). Calculate the
project's NPV under the "worst-case scenario."
The NPV for the best-case scenario will be S
(Round to the nearest dollar.)
The NPV for the worst-case scenario will be $
|. (Round to the nearest dollar.)
Transcribed Image Text:Data Table
Unit price:
$128
Variable costs: $71
Fixed costs:
$248,000 per year
Expected sales: 10,600 per year
in order to copy its contents into a spreadsheet.)
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