NPV ( Net Present Value ) of the project Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 9, Problem 8PS

a.

Summary Introduction

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

a.

Expert Solution

Answer to Problem 8PS

$18,092,131.90 is the Net Present Value

Explanation of Solution

Given Information:

The beta value, risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

Calculation of net Present Value,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

“C” refers to the cash flow,

“I” refers to discount rate

“t” refers to the time for cash flow

The CAPM equation ism

ExpectedReturn=RiskFreeRate+Beta[ExpectedMarketRisk−RiskFreeRate]

=rf+β[E(rM)−rf]

Er , the expected return

rf , the risk free rate of interest

β , the systematic risk

rM , return on market index

Er=rf+β[E(rM)−rf]=8%+1.8[16%−8%]=8%+1.8[8%]=22.4%

Calculating the NPV of the project,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

=[−$40,000,000+$15,000,000(1+0.224)1+$15,000,000(1+0.224)2+$15,000,000(1+0.224)3+$15,000,000(1+0.224)4+$15,000,000(1+0.224)5+$15,000,000(1+0.224)6+$15,000,000(1+0.224)7+$15,000,000(1+0.224)8+$15,000,000(1+0.224)9+$15,000,000(1+0.224)10]

=$18,092,131.90

So the Net Present Value is $18,092,131.90

b.

Summary Introduction

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

b.

Expert Solution

Answer to Problem 8PS

3.47 is the highest possible value of beta for the project.

Explanation of Solution

Given Information:

The risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

At internal rate of return, the NPV will be zero. So first calculate internal rate of return,

YEAR	CASH FLOW ($)
0	-40,000,000
1	15,000,000
2	15,000,000
3	15,000,000
4	15,000,000
5	15,000,000
6	15,000,000
7	15,000,000
8	15,000,000
9	15,000,000
10	15,000,000
IRR	35.7333%

The calculation of Beta,

Er=rf+β[E(rM)−rf]⇒35.7333%=8%+βi[16%−8%]⇒35.7333%=8%+βi[8%]⇒35.7333%−8%=βi[8%]⇒27.7333%=βi[8%]⇒βi[8%]=27.7333%⇒βi=27.7333%8%=3.47

Before the NPV becomes negative, the highest value of beta is 3.47

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Article: Current Bank Problem Statement The general problem to be surveyed is that leaders lack an understanding of how to address job demands, resulting in an increase in voluntary termination, counterproductive workplace outcomes, and a loss of customers. Bank leaders discovered from customer surveys that customers are closing accounts because their rates are not competitive with area credit unions. Job demands such as a heavy workload interfered with employee performance, leading to decreased job performance. Healthcare employees who felt the organization’s benefits were not competitive were more likely to quit without notice, resulting in retention issues for the organization. Information technology leaders who provide job resources to offset job demand have seen an increase in (a) new accounts, (b) employee productivity, (c) positive workplace culture, and (d) employee retention. The specific problem to be addressed is that IT technology leaders in the information technology…

How to rewrite the problem statement, correcting the identified errors of the Business Problem Information and the current Bank Problem Statement (for the discussion: Evaluating a Problem Statement)

Don't used hand raiting and don't used Ai solution

Answer 2

Question

Chapter 9, Problem 8PS

a.

Summary Introduction

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

a.

Expert Solution

Answer to Problem 8PS

$18,092,131.90 is the Net Present Value

Explanation of Solution

Given Information:

The beta value, risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

Calculation of net Present Value,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

“C” refers to the cash flow,

“I” refers to discount rate

“t” refers to the time for cash flow

The CAPM equation ism

ExpectedReturn=RiskFreeRate+Beta[ExpectedMarketRisk−RiskFreeRate]

=rf+β[E(rM)−rf]

Er , the expected return

rf , the risk free rate of interest

β , the systematic risk

rM , return on market index

Er=rf+β[E(rM)−rf]=8%+1.8[16%−8%]=8%+1.8[8%]=22.4%

Calculating the NPV of the project,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

=[−$40,000,000+$15,000,000(1+0.224)1+$15,000,000(1+0.224)2+$15,000,000(1+0.224)3+$15,000,000(1+0.224)4+$15,000,000(1+0.224)5+$15,000,000(1+0.224)6+$15,000,000(1+0.224)7+$15,000,000(1+0.224)8+$15,000,000(1+0.224)9+$15,000,000(1+0.224)10]

=$18,092,131.90

So the Net Present Value is $18,092,131.90

b.

Summary Introduction

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

b.

Expert Solution

Answer to Problem 8PS

3.47 is the highest possible value of beta for the project.

Explanation of Solution

Given Information:

The risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

At internal rate of return, the NPV will be zero. So first calculate internal rate of return,

YEAR	CASH FLOW ($)
0	-40,000,000
1	15,000,000
2	15,000,000
3	15,000,000
4	15,000,000
5	15,000,000
6	15,000,000
7	15,000,000
8	15,000,000
9	15,000,000
10	15,000,000
IRR	35.7333%

The calculation of Beta,

Er=rf+β[E(rM)−rf]⇒35.7333%=8%+βi[16%−8%]⇒35.7333%=8%+βi[8%]⇒35.7333%−8%=βi[8%]⇒27.7333%=βi[8%]⇒βi[8%]=27.7333%⇒βi=27.7333%8%=3.47

Before the NPV becomes negative, the highest value of beta is 3.47

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 9, Problem 8PS

a.

Summary Introduction

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

a.

Expert Solution

Answer to Problem 8PS

$18,092,131.90 is the Net Present Value

Explanation of Solution

Given Information:

The beta value, risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

Calculation of net Present Value,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

“C” refers to the cash flow,

“I” refers to discount rate

“t” refers to the time for cash flow

The CAPM equation ism

ExpectedReturn=RiskFreeRate+Beta[ExpectedMarketRisk−RiskFreeRate]

=rf+β[E(rM)−rf]

Er , the expected return

rf , the risk free rate of interest

β , the systematic risk

rM , return on market index

Er=rf+β[E(rM)−rf]=8%+1.8[16%−8%]=8%+1.8[8%]=22.4%

Calculating the NPV of the project,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

=[−$40,000,000+$15,000,000(1+0.224)1+$15,000,000(1+0.224)2+$15,000,000(1+0.224)3+$15,000,000(1+0.224)4+$15,000,000(1+0.224)5+$15,000,000(1+0.224)6+$15,000,000(1+0.224)7+$15,000,000(1+0.224)8+$15,000,000(1+0.224)9+$15,000,000(1+0.224)10]

=$18,092,131.90

So the Net Present Value is $18,092,131.90

b.

Summary Introduction

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

b.

Expert Solution

Answer to Problem 8PS

3.47 is the highest possible value of beta for the project.

Explanation of Solution

Given Information:

The risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

At internal rate of return, the NPV will be zero. So first calculate internal rate of return,

YEAR	CASH FLOW ($)
0	-40,000,000
1	15,000,000
2	15,000,000
3	15,000,000
4	15,000,000
5	15,000,000
6	15,000,000
7	15,000,000
8	15,000,000
9	15,000,000
10	15,000,000
IRR	35.7333%

The calculation of Beta,

Er=rf+β[E(rM)−rf]⇒35.7333%=8%+βi[16%−8%]⇒35.7333%=8%+βi[8%]⇒35.7333%−8%=βi[8%]⇒27.7333%=βi[8%]⇒βi[8%]=27.7333%⇒βi=27.7333%8%=3.47

Before the NPV becomes negative, the highest value of beta is 3.47

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 9, Problem 8PS

a.

Summary Introduction

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

a.

Expert Solution

Answer to Problem 8PS

$18,092,131.90 is the Net Present Value

Explanation of Solution

Given Information:

The beta value, risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

Calculation of net Present Value,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

“C” refers to the cash flow,

“I” refers to discount rate

“t” refers to the time for cash flow

The CAPM equation ism

ExpectedReturn=RiskFreeRate+Beta[ExpectedMarketRisk−RiskFreeRate]

=rf+β[E(rM)−rf]

Er , the expected return

rf , the risk free rate of interest

β , the systematic risk

rM , return on market index

Er=rf+β[E(rM)−rf]=8%+1.8[16%−8%]=8%+1.8[8%]=22.4%

Calculating the NPV of the project,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

=[−$40,000,000+$15,000,000(1+0.224)1+$15,000,000(1+0.224)2+$15,000,000(1+0.224)3+$15,000,000(1+0.224)4+$15,000,000(1+0.224)5+$15,000,000(1+0.224)6+$15,000,000(1+0.224)7+$15,000,000(1+0.224)8+$15,000,000(1+0.224)9+$15,000,000(1+0.224)10]

=$18,092,131.90

So the Net Present Value is $18,092,131.90

b.

Summary Introduction

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

b.

Expert Solution

Answer to Problem 8PS

3.47 is the highest possible value of beta for the project.

Explanation of Solution

Given Information:

The risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

At internal rate of return, the NPV will be zero. So first calculate internal rate of return,

YEAR	CASH FLOW ($)
0	-40,000,000
1	15,000,000
2	15,000,000
3	15,000,000
4	15,000,000
5	15,000,000
6	15,000,000
7	15,000,000
8	15,000,000
9	15,000,000
10	15,000,000
IRR	35.7333%

The calculation of Beta,

Er=rf+β[E(rM)−rf]⇒35.7333%=8%+βi[16%−8%]⇒35.7333%=8%+βi[8%]⇒35.7333%−8%=βi[8%]⇒27.7333%=βi[8%]⇒βi[8%]=27.7333%⇒βi=27.7333%8%=3.47

Before the NPV becomes negative, the highest value of beta is 3.47

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 9, Problem 8PS

a.

Summary Introduction

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

a.

Expert Solution

Answer to Problem 8PS

$18,092,131.90 is the Net Present Value

Explanation of Solution

Given Information:

The beta value, risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

Calculation of net Present Value,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

“C” refers to the cash flow,

“I” refers to discount rate

“t” refers to the time for cash flow

The CAPM equation ism

ExpectedReturn=RiskFreeRate+Beta[ExpectedMarketRisk−RiskFreeRate]

=rf+β[E(rM)−rf]

Er , the expected return

rf , the risk free rate of interest

β , the systematic risk

rM , return on market index

Er=rf+β[E(rM)−rf]=8%+1.8[16%−8%]=8%+1.8[8%]=22.4%

Calculating the NPV of the project,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

=[−$40,000,000+$15,000,000(1+0.224)1+$15,000,000(1+0.224)2+$15,000,000(1+0.224)3+$15,000,000(1+0.224)4+$15,000,000(1+0.224)5+$15,000,000(1+0.224)6+$15,000,000(1+0.224)7+$15,000,000(1+0.224)8+$15,000,000(1+0.224)9+$15,000,000(1+0.224)10]

=$18,092,131.90

So the Net Present Value is $18,092,131.90

b.

Summary Introduction

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

b.

Expert Solution

Answer to Problem 8PS

3.47 is the highest possible value of beta for the project.

Explanation of Solution

Given Information:

The risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

At internal rate of return, the NPV will be zero. So first calculate internal rate of return,

YEAR	CASH FLOW ($)
0	-40,000,000
1	15,000,000
2	15,000,000
3	15,000,000
4	15,000,000
5	15,000,000
6	15,000,000
7	15,000,000
8	15,000,000
9	15,000,000
10	15,000,000
IRR	35.7333%

The calculation of Beta,

Er=rf+β[E(rM)−rf]⇒35.7333%=8%+βi[16%−8%]⇒35.7333%=8%+βi[8%]⇒35.7333%−8%=βi[8%]⇒27.7333%=βi[8%]⇒βi[8%]=27.7333%⇒βi=27.7333%8%=3.47

Before the NPV becomes negative, the highest value of beta is 3.47

Answer 6

Chapter 9, Problem 8PS

a.

Summary Introduction

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

a.

Expert Solution

Answer to Problem 8PS

$18,092,131.90 is the Net Present Value

Explanation of Solution

Given Information:

The beta value, risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

Calculation of net Present Value,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

“C” refers to the cash flow,

“I” refers to discount rate

“t” refers to the time for cash flow

The CAPM equation ism

ExpectedReturn=RiskFreeRate+Beta[ExpectedMarketRisk−RiskFreeRate]

=rf+β[E(rM)−rf]

Er , the expected return

rf , the risk free rate of interest

β , the systematic risk

rM , return on market index

Er=rf+β[E(rM)−rf]=8%+1.8[16%−8%]=8%+1.8[8%]=22.4%

Calculating the NPV of the project,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

=[−$40,000,000+$15,000,000(1+0.224)1+$15,000,000(1+0.224)2+$15,000,000(1+0.224)3+$15,000,000(1+0.224)4+$15,000,000(1+0.224)5+$15,000,000(1+0.224)6+$15,000,000(1+0.224)7+$15,000,000(1+0.224)8+$15,000,000(1+0.224)9+$15,000,000(1+0.224)10]

=$18,092,131.90

So the Net Present Value is $18,092,131.90

Answer 7

Chapter 9, Problem 8PS

a.

Summary Introduction

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Answer 8

a.

Expert Solution

Answer to Problem 8PS

$18,092,131.90 is the Net Present Value

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given Information:

The beta value, risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

Calculation of net Present Value,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

“C” refers to the cash flow,

“I” refers to discount rate

“t” refers to the time for cash flow

The CAPM equation ism

ExpectedReturn=RiskFreeRate+Beta[ExpectedMarketRisk−RiskFreeRate]

=rf+β[E(rM)−rf]

Er , the expected return

rf , the risk free rate of interest

β , the systematic risk

rM , return on market index

Er=rf+β[E(rM)−rf]=8%+1.8[16%−8%]=8%+1.8[8%]=22.4%

Calculating the NPV of the project,

NetPresentValue=∑i=0NC(1+i)

=[C0+C1(1+i)1+C2(1+i)2+C3(1+i)3+C4(1+i)4+C5(1+i)5+C6(1+i)6+C7(1+i)7+C8(1+i)8+C9(1+i)9+C10(1+i)10]

=[−$40,000,000+$15,000,000(1+0.224)1+$15,000,000(1+0.224)2+$15,000,000(1+0.224)3+$15,000,000(1+0.224)4+$15,000,000(1+0.224)5+$15,000,000(1+0.224)6+$15,000,000(1+0.224)7+$15,000,000(1+0.224)8+$15,000,000(1+0.224)9+$15,000,000(1+0.224)10]

=$18,092,131.90

So the Net Present Value is $18,092,131.90

Answer 13

b.

Summary Introduction

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

b.

Expert Solution

Answer to Problem 8PS

3.47 is the highest possible value of beta for the project.

Explanation of Solution

Given Information:

The risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

At internal rate of return, the NPV will be zero. So first calculate internal rate of return,

YEAR	CASH FLOW ($)
0	-40,000,000
1	15,000,000
2	15,000,000
3	15,000,000
4	15,000,000
5	15,000,000
6	15,000,000
7	15,000,000
8	15,000,000
9	15,000,000
10	15,000,000
IRR	35.7333%

The calculation of Beta,

Er=rf+β[E(rM)−rf]⇒35.7333%=8%+βi[16%−8%]⇒35.7333%=8%+βi[8%]⇒35.7333%−8%=βi[8%]⇒27.7333%=βi[8%]⇒βi[8%]=27.7333%⇒βi=27.7333%8%=3.47

Before the NPV becomes negative, the highest value of beta is 3.47

Answer 14

b.

Summary Introduction

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Answer 15

b.

Expert Solution

Answer to Problem 8PS

3.47 is the highest possible value of beta for the project.

Answer 16

b.

Expert Solution

Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given Information:

The risk free rate of interest, expected return on market is given.

Net present value is the discounting of present value of cash inflow and outflow at a specified rate. When the NPV becomes positive, then the investment is profitable. It analyzes the profitability of the project.

At internal rate of return, the NPV will be zero. So first calculate internal rate of return,

YEAR	CASH FLOW ($)
0	-40,000,000
1	15,000,000
2	15,000,000
3	15,000,000
4	15,000,000
5	15,000,000
6	15,000,000
7	15,000,000
8	15,000,000
9	15,000,000
10	15,000,000
IRR	35.7333%

The calculation of Beta,

Er=rf+β[E(rM)−rf]⇒35.7333%=8%+βi[16%−8%]⇒35.7333%=8%+βi[8%]⇒35.7333%−8%=βi[8%]⇒27.7333%=βi[8%]⇒βi[8%]=27.7333%⇒βi=27.7333%8%=3.47

Before the NPV becomes negative, the highest value of beta is 3.47

Answer 20

Ch. 9 - Prob. 1PS Ch. 9 - Prob. 2PS Ch. 9 - Prob. 3PS Ch. 9 - Prob. 4PS Ch. 9 - Prob. 5PS Ch. 9 - Prob. 6PS Ch. 9 - Prob. 7PS Ch. 9 - Prob. 8PS Ch. 9 - Prob. 9PS Ch. 9 - Prob. 10PS

NPV ( Net Present Value ) of the project Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Concept explainers

Videos

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Answer to Problem 8PS

Explanation of Solution

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Answer to Problem 8PS

Explanation of Solution

Want to see more full solutions like this?

Chapter 9 Solutions

NPV ( Net Present Value ) of the project Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Concept explainers

Videos

To determine: NPV (Net Present Value) of the project Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Answer to Problem 8PS

Explanation of Solution

To determine: The highest possible beta for the project Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

Answer to Problem 8PS

Explanation of Solution

Want to see more full solutions like this?

Chapter 9 Solutions

To determine: NPV (Net Present Value) of the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.

To determine: The highest possible beta for the project

Introduction: The net present value helps to an organization for taking decisions regarding the growth of investment and the business. It analyzes the profitability of the project through capital budgeting.