CORPORATE FINANCE - LL+CONNECT ACCESS
12th Edition
ISBN: 9781264054961
Author: Ross
Publisher: MCG
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Chapter 12, Problem 1QAP
Summary Introduction
Adequate information:
Expected GNP growth = 3.5%
Expected interest rate = 2.9%
Beta on change in GNP (ßGNP) = 1.3
Beta on change in interest rate (ßr) = -0.47
Expected
Actual GNP growth = 3.2%
Actual interest rate = 2.7%
To compute: The revised expected return.
Introduction: Expected return simply refers to the return that is anticipated on the investment.
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Estefan Industies has a new project available that requires an initial investment of sex million. The project will provide unlevered cash flows of $925,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of 35. The company's bonds have a YTM of 5.9 percent. The companies with operations comparable to this project have unlevered betas of 1.09, 1.17, 1.28, and 1.20. The risk-free rate is 3.6 percent, and the market risk premium is 7 percent. The tax rate is 21 percent. What is the NPV of this project?
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Chapter 12 Solutions
CORPORATE FINANCE - LL+CONNECT ACCESS
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