IDX Tech is looking to expand its investment in advanced security systems. The project will be financed with equity. You are trying to assess the value of the investment, and must estimate its cost of capital. You find the following data for a publicly-traded firm in the same line of business: By making some realistic assumptions, estimate the project's beta. The estimated project's beta is Data table (Round to two decimal places.) (Click on the following icon in order to copy its contents into a spreadsheet.) Debt outstanding (book value, AA-rated) $344 million Number of shares of common stock 89 million $14.53 $5.88 1.29 Stock price per share Book value of equity per share Beta of equity
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Q12-6
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- Internal rate of return For the project shown in the following table, calculate the internal rate of return (IRR). Then indicate, for the project, the maximum cost of capital that the firm could have and still find the IRR acceptable. The project's IRR is %. (Round to two decimal places.) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Initial investment (CF,) $100,000 Year (t) Cash inflows (CF;) $10,000 $10,000 $45,000 $30,000 $35,000 1 4 5 Print DoneSVR Clinical Research, LLC Mrs. Seaver, a microbiologist and pharmacist, has developed a drug therapy to treat dysphagia (swallowing problems). She discovered that a combination of existing drugs should address problems with swallowing that have only marginal treatments available to date. Since the therapy is using currently approved drugs, safety of the treatment is expected. It should allow the drug to enter Phase 2 clinical trials very soon after the firm raises its first $3 million in seed capital. Startup investors recognize that they are investing in firms with no history and with significant risk. They evaluate investment opportunities using required returns in the range of 10x5 (That is, the investors want to have their investment return to be 10 times great than the initial investment at the end of 5 years.) Mrs. Seaver's team has developed a clinical trial plan using major research medical centers such as the Vanderbilt University Medical Center and the Cleveland Clinic. The…Your boss, the chief financial officer (CFO) for Dream Analytics Inc., has just handed you the estimated cash flows for two proposed projects. Project A involves adding a new item to the firm’s Digital Intelligence software line. It would take some time to build up the market for this product, so the cash inflows would increase over time. Project B involves an add-on to an existing Global Integration self-guided software line, and its cash flows would decrease over time. Both projects have 4-year lives because Dream Analytics is planning to introduce an entirely new Artificial Intelligence software product at that time. The budget is $25,000 for the initial investment. Here are the estimated net cash flows (in thousands of dollars): Expected Net Cash Flows Year Project A Project B 0 $(25,000) $(25,000) 1 12500 9000 2 9900 23000 3 21000 11000 4 14000 1500 The CFO also made subjective risk assessments of each project, and he concluded that the projects both have risk characteristics that…
- MCS Corporation is considering two possible investments and needs your help in determining which will be the better financial option. Perform the necessary calculations using Microsoft Excel so that maximum precision can be obtained. (Unless indicated otherwise, enter your answers rounded to the nearest whole dollar/input code: 0). Investment Option "North" This potential investment is a little more risky and longer term, so it has a minimum rate of return of 17.60%. This investment would require an initial outlay of cash to purchase a piece of equipment for $131,000, and at the end of the 8- year life of this investment is expected to have a salvage value of $39,300. For each year of this investment, net annual cash inflows are expected to be $29,500. 1. How much is the present value of the purchase of equipment? 2. How much is the present value of the salvage value? 3. How much is the present value of the annual cash inflows? 4. How much is the Net Present Value? 5. What is the value…You are a portfolio manager for a large investment firm that is considering an investment in a startup technology company. The company has developed a new software application that is expected to revolutionize the industry. However, the company is not yet profitable and has a high degree of risk. Which of the following measures of risk would be most appropriate to evaluate this investment? Sharpe ratio Standard deviation Expected return BetaWhat Suppose your organization is deciding which of four projects to bid on. Information on each is in the table below. Assume that all up-front investments are not recovered, so they are shown as negative profits. Draw a diagram and calculate the EMV for each project. Write a few paragraphs explaining which projects you would bid on. Be sure to use the EMV information and your personal risk tolerance to justify your answer
- In the Barney-Jones investment model, we ran investments across columns and years down rows. Many financial analysts seem to prefer the opposite. Modify the spreadsheet model so that years go across columns and investments go down rows. Run Solver to ensure that your modified model is correct. (There are two possible ways to do this, and you can experiment to see which you prefer. First, you could basically start over on a blank worksheet. Second, you could use Excel’s TRANSPOSE function on the final version of the model.)Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph Please answer A, B, C & DPLEASE ANSWER ALL THE QUESTIONS Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nine line items. Question 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph Question 3 From the information generated in the previous two questions; a) Identify two investment alternatives that can be combined in a portfolio. Assume a 50-50 investment allocation in each investment alternative. b) Compute the expected return of the portfolio thus formed. c) Compute the portfolio’s beta. Is the portfolio aggressive or defensive?
- On the basis of the financial information given in this case, complete the WACC table that is prepared for this project . What was the WACC for Atlassian as at 2022? What was the WACC one year earlier? Estimate the important financial information such as the after-tax cost of debt, the risk-free rate, the market risk premium, the cost of equity and the weight of debt and equity. Clearly specify and justify the assumptions and calculations required for these analyses (ie. how did you select the beta, risk-free rate, market return, etc). WACC Calculation for Atlasian 2021 2022 Shares Outstanding (in millions) Share Price Market Value Equity Total Market Value of Debt Total Capital - Atlassian Weight of Debt Weight of Equity Cost of Debt Effective Interest Rate for Atlassian Tax Rate After-tax Cost of Debt Cost of Equity Beta Market risk premium Rf Cost of…Hello can you show how to graph this and how i can figure out what the beta is oout of this informatio. There is no expected return, in the second picture i have uploaded is the solutions for it, i guess i just have to assume a expected return which they assumed it to be 10% Which formula was used to calculate beta? why does it make sense to divide expected return with treynor to get beta? - This is the whole problem6. Use Excel, Calculator, and Formula. Show your work. Based on the data below, estimate the following: E(r) = [Probability of Economic State x Return in Economic State 0² (r) = [[Return in State; - E(r)]³ x Probability of State; a. Estimate the expected return and risk of Asset A (TESLA) b. Estimate the Expected Return and risk of Asset B (APPLE) c. Estimate the Expected return and risk of a 60A and 40B portfolio d. Summarize your results and determine whether the Portfolio Diversification helped decrease the investment risk. Explain your answer. State of the Economy Probability of Economic State S Pr 1 N 0.6 Return In Economic State TESLA APPLE R R 0.27 -0.10 -0.15 0.35