You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for theproject are as follows:Years01-10Cash Flow-100+15On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assuming that the rate of return available onrisk-free investments is 4% and that the expected rate of return on the market portfolio is 12%, what is the net present value of theproject?Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millionsof dollars rounded to 2 decimal places.Net present valuemillion

Net present valueCalculation used to evaluate the investment and financing decisions that involve…

Answered: You are a consultant to a firm…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are a consultant to a firm evaluating an expansion of its current business. The annual cash flow forecasts (in millions of dollars) for the project are Years 0 1 10 NPV Annual Cash Flow -95 17 Based on the behaviour of the firm's stock, you believe that the beta of the firm is 1.5. Assuming that the rate of return available on risk free investments is 5% and that the expected rate of return on the market portfolio is 13%, what is the net present value of the project? (Enter your answers in millions Round your answer to 2 decimal places. Use minus sign to enter negative answers, if any.) million
A manager believes his firm will earn a return of 20.30 percent next year. His firm has a beta of 1.36, the expected return on the market is 15.90 percent, and the risk-free rate is 5.90 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return %
You were recently asked to determine the intrinsic value of JBI Stock. Based on your research, you estimate the following free cash flows: Year 1 Negative $10 million Year 2 Positive $11.6 million Year 3 Positive $17.5 million Year 4 Positive $25.1 million You anticipate that after year 4 the company will grow annually by 5%. Based on the risk profiles you would like to get a return on this investment of 9%. The company currently has 5 million shares outstanding. What is the value of the stock based on this data? J2mil 9 17mi
You are considering acquiring a firm that you believe can generate expected cash flows of $10,000 a year forever. However, you recognize that those cash flows are uncertain. a. Suppose you believe that the beta of the firm is 0.4. How much is the firm worth if the risk-free rate is 4% and the expected rate of return on the market portfolio is 11%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of the firm b. By how much will you overvalue the firm if its beta is actually 0.6? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Overvaluation Prev 7 of 8 Next > re to search bp 近

You are currently considering in investing Rs.1.2 million in equity investment portfolio. Your analysis reveals that equity stock of the following three companies are suitable options for your investment. Company P R Expected retum (%) Standard deviation (%) Correlation coefficient; 25 22 20 30 26 24 PQ QR -0.5 +0.4 PR +0.6 You are required to; (a) Calculate the expected returm of the portfolio if Rs.1.2 million is equally invested in the stocks of all three companies.
You are considering acquiring a firm that you believe can generate expected cash flows of $10,000 a year forever. However, you recognize that those cash flows are uncertain. a. Suppose you believe that the beta of the firm is 0.4. How much is the firm worth if the risk-free rate is 4% and the expected rate of return on the market portfolio is 11%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Value of the firm b. By how much will you overvalue the firm if its beta is actually 0.6? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Overvaluation < Prev 7 of 8 Next m earch
Question1: A: Currently under consideration is an investment with a beta, b, of 1.50. At this time, the risk-free rate of return, RF, is 7%, and the return on the market portfolio of assets, rm, is 10%. Calculate the Required return using capm? B: An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market value of $12 million even though it experienced a loss, or negative net income, of $2.5 million. Did the analyst’s prediction prove correct? Explain using the values for total annual return.
Consider the following security, which you expect will grow rapidly for three years followed by a steady growth indefinitely. Emerson Tool and Die Company Earnings Per Share, 2020 $2.50 Dividend Payout Rate $0.60 Extradordinary Growth Rate 0.35 Sustainable Growth Rate 0.05 Market Capitalization Rate 0.15 Required: Using the information in the tables above, please calculate the cash flows per period and the price of this stock. (Use cells A5 to B9 from the given information to complete this question.) Time Cash Flow 1 2 3 Horizon Value Present Value (Price)
A firm's common stock has just paid a $3.00 dividend (Do), which is expected to grow at a constant rate of 6.0 percent each year. The beta of this stock is 1.30, the risk-free rate is 4.0 percent, and the expected return on the market is 10.0 percent. Determine how much you should be willing to pay (the intrinsic value) for this stock today. Assume that CAPM is the correct model for required returns. 536.55 $54.83 $63.97 $73:10 545.69
Assume that you are using the Capital Asset Pricing Model (CAPM) to find the expected return for a share of common stock. Your research shows the following: Beta = βi = 1.54 Risk free rate = Rf = 2.5% per year Market return = E(RM) = 6.5% per year Based on this information, answer the following: A. Based on the beta, how does the stock's risk compare to the market overall? On what do you base your answer? B. Based on the beta, how would you expect the stock's returns to react to a decrease in returns in the market overall? Why? C. According to the CAPM and the information given above, what is the expected return E(Ri) for this stock? D. If the required rate of return on this stock were 7% per year, would you invest? Why or why not?
An analyst produces the following series of annual dividend forecasts for company D: Expected dividend (end of) year t+1 = 10 euros; Expected dividend (end of) year t+2 = 20 euros; Expected dividend (end of) year t+3 = 10 euros. The analyst further expects that company D dividend will grow indefinitely at a rate of 2 percent after year t+3. Company D cost of equity equals 10 percent. Under these assumptions, calculate the analysts estimate of company D equity value at the end of year t.
Assume the risk-free rate is 4% and the beta for a particular firm is 2, current firm share price is $35 and the market risk premium is 8%. A.Given the risk level, what is the one-year required rate of return (we will call this k)? B.If next year’s expected dividend is $3, use k from part A to solve for the expected next year’s price.

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