You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now 0 1-10 After-Tax Cash Flow -85 19 The project's beta is 1.2. Required: a. Assuming that rf= 7% and E(M) = 11%, what is the net present value of the project? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the highest possible beta estimate for the project before its NPV becomes negative? Note: Round your answer to 2 decimal places. a. Net present value b. Highest beta

You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now 0 1-10 After-Tax Cash Flow -85 19 The project's beta is 1.2. Required: a. Assuming that rf= 7% and E(M) = 11%, what is the net present value of the project? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the highest possible beta estimate for the project before its NPV becomes negative? Note: Round your answer to 2 decimal places. a. Net present value b. Highest beta

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in
millions of dollars):
Years from
Now
0
1-10
After-Tax
Cash Flow
-85
19
The project's beta is 1.2.
Required:
a. Assuming that rf= 7% and E(TM) = 11%, what is the net present value of the project?
Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.
b. What is the highest possible beta estimate for the project before its NPV becomes negative?
Note: Round your answer to 2 decimal places.
a. Net present value
b. Highest beta

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