INVESTMENTS-CONNECT PLUS ACCESS
INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 9, Problem 24PS

A.

Summary Introduction

To determine: Effect of liquidity in consumption based capital asset pricing model

Introduction: The consumption based capital asset pricing model is similar that of the capital asset pricing model. It uses consumption beta instead of market beta to determine the expected return.

B.

Summary Introduction

To determine: Effect of Non-traded assets in the consumption-based capital asset pricing model

Introduction: The consumption-based capital asset pricing model is similar to that of the capital asset pricing model. It uses consumption beta instead of market beta to determine the expected return.

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Question 1 (6 marks) King’s Park, Trinidad is owned and operated by a private company, Windy Sports Ltd. You work as the Facilities Manager of the Park and the CEO of the company has asked you to evaluate whether Windy should embark on the expansion of the facility given there are plans by the Government to host next cricket championship. The project seeks to increase the number of seats by building four new box seating areas for VIPs and an additional 5,000 seats for the general public. Each box seating area is expected to generate $400,000 in incremental annual revenue, while each of the new seats for the general public will generate $2,500 in incremental annual revenue. The incremental expenses associated with the new boxes and seating will amount to 60 percent of the revenues. These expenses include hiring additional personnel to handle concessions, ushering, and security. The new construction will cost $15 million and will be fully depreciated (to a value of zero dollars) on a…
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