You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for theproject are as follows:Years01-10Cash Flow-100+15On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assuming that the rate of return available onrisk-free investments is 4% and that the expected rate of return on the market portfolio is 12%, what is the net present value of theproject?Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millionsof dollars rounded to 2 decimal places.Net present valuemillion

Net present valueCalculation used to evaluate the investment and financing decisions that involve…

Answered: You are a consultant to a firm…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $75,000with a probability of 25%, $125,000 with a probability of 50%, or $140,000 with a probability of 25%.The alternative risk-free investment in T-bills pays 4% per year. a) If you require a risk premium of 8%, how much will you be willing to pay for the portfolio?b) What is the Sharpe ratio of the portfolio if you can purchase it at the price calculated above?
Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three attractive stocks and want to create a portfolio investment in these three stocks. The details of the stocks are given below: Company name Volatility (Standard deviation) Weight in Portfolio Correlation with the market portfolio Engro Ltd 10% 0.30 0.5 FFC Ltd 20% 0.40 1.5 Fatima Fertilizer Ltd 15% 0.30 1.0 The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate based on central bank’s discount rate is 3%. Calculate each of the stock’s expected return and risk (beta) as compared to the market. What should be the expected return of the portfolio based on values calculated in part a.c. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio? Using the values from part c, can you calculate the expected return of the portfolio? Is it similar to your answer in part b? Why…
Assume that you have just received information from your investment advisor that your portfolio has reached a value of $1,250,000. Your portfolio consists of three stocks, as follows: Stock Amount Invested % of Total Beta A $250,000 20% 1.12 B $400,000 32% .85 C $600,000 48% .55 Total: $1,250,000 100% Calculate the beta of this investment portfolio. Assume that the expected market return ( r m ) is 9 percent and the expected risk- free rate ( RF ) is 2 percent. What is the expected return ( r j ) for this investment portfolio?
You are a provider of portfolio insurance and are establishing a four-year program. The portfolio you manage is currently worth $70 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 6.2% per year. Assume that the portfolio pays no dividends. Required: a-1. How much of the portfolio should be sold and placed in bills? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) a-2. How much of the portfolio should be sold and placed in equity? (Input the value as a positive value. Do not round intermediate calculations and round your final percentage answer to 2 decimal places.) b-1. Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading, before the hedge is in place? (Input the value as a positive value. Do not round intermediate calculations. Round your…
As a financial advisor at ABC Corporation, the CEO asked you to analyze the followinginformation pertaining to two common stock investments, TI and SG. You are told that a oneyear Treasury Bill will have a rate of return of 5% over the next year. Also, information froman investment advising service lists the current beta for TI as 1.68 and for SG as 0.52. You areprovided a series of questions to guide your analysis. Economy Probability TI SG market Recession 30% -20% 5% -4% Average 20% 15% 6% 11% Expansion 35% 30% 8% 17% Boom 15% 50% 10% 27% 6. If you form a two-stock portfolio by investing RM70,000 in TI and RM30,000 in SG, whatis the portfolio beta and expected rate of return? 6. If you form a two-stock portfolio by investing RM70,000 in TI and RM30,000 in SG, whatis the portfolio beta and expected rate of return?
Give typing answer with explanation and conclusion
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 0 – 100 1-10 + 17 On the basis of the behavior of the firm’s stock, you believe that the beta of the firm is 1.44. 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 11%, what is the net present value of the project?
Beta of a project. Magellan is adding a project to the company portfolio and has the following information: the expected market return is 12.7%, the risk-free rate is 2.4%, and the expected return on the new project is 16.5%. What is the project's beta? What is the project's beta? (Round to three decimal places.)
1. Suppose your expectations regarding the stock market are as follows: State of the Probability HPR Economy Boom 0.3 33% Normal growth 0.3 19 Recession 0.4 -15 a. What is the expected return, variance and standard deviation? 2. Assume that you manage a risky portfolio with an expected rate of return of 13% and a standard deviation of 29%. The T-bill rate is 5%. Your client chooses to invest 75% of a portfolio in your fund and 25% in a T-bill money market fund. a. What is the expected return and standard deviation of your client's portfolio? b. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? Explain the sharp ratio.
State the return rate (in %) for your optimal portfolio.
The investment funds for your company includes the following: Stock $ Amount Invested Beta for Each Stock A $ 600,000 .8 B $ 1,800,000 1.4 C $ 2,400,000 1.7 D $ 700,000 -.6 E $ 3,000,000 1.1 You need to calculate the required rate of return for the investment. The market’s required return for Year 2020 is 12% and the risk free rate is 3% Show your work on the following: Calculate the average beta for the portfolio. Calculate the required rate of return for the entire portfolio. The CFO of your company is anticipating that the stock market will be decreasing in the near future. Please give a recommendation on which stock the company should sell and which stock the company should buy. The CFO also wants you to explain your answer.
Your broker has developed a list of firms, their betas, and the return he expects the stock to yield over the next twelve months (labeled "Expected Return"). You have estimated that the risk-free rate is 5% and the return to the market will be 12%. Assuming that CAPM is correct, which stock should you purchase? Expected Return 10.5% Delta Vanlines 1.25 13.0 % 1.60 16.0% Firm Beta Anderson, Inc. 0.90 Nathan's Bakeries Z-man Electronics O Delta Vanlines 1.90 19.0% All of the stocks, Anderson, Inc. O Nathan's Bakeries OZ-man Electronics

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