Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 26, Problem 8P
Summary Introduction
To calculate: The value of option using Black Scholes model.
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A project has an assigned beta of 1.24, the
risk-free rate is 3.8%, and the market rate of
return is 9.2%. What is the project's
expected rate of return?
A. 15.21%
B. 11.41%
C. 10.50%
D. 14.61%
39
Suppose that you found the probabilities and expected NPVs of 3 scenarios for a timing option:
E(NPV) probability
$0.15 0.30
$10.35 0.50
$42 0.20
1. What is the expected NPV of the timing option? Show your work.
2. Suppose, that the expected NPV of the project if proceeding today is $14. Should the project be delayed based on your finding in part 1 or should the management implement it today? Briefly explain.
Chapter 26 Solutions
Financial Management: Theory & Practice
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- What is the expected return of the following investment?arrow_forwardAnalyze investment M and investment J using the below. Scenario Probability M Return J Return Strong .30 18% 20% Normal .30 15% 12% Weak .40 9% 5% 1. What is the range for M? 2. What is the average exp. return for M ? 3. What is the standard deviation* M? 3.85 (given) 4. What is the CV for M? 5. What is the range for J? 6. What is the average exp. return for J? 7. What is the standard deviation J? 6.22 (given) 8. What is the CV for J? 9. Which is the better choice?arrow_forwardA project under consideration has an internal rate of return of 17% and a beta of 0.5. The risk-free rate is 9% and the expected rate of return on the market portfolio is 17%. A. What is the required rate of return on the project? B. Should the project be accepted? C. What is the required rate of return on the project if the beta is 1.50? D. If projects beta is 1.50, should the project be accepted?arrow_forward
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