A company has a project with initial investment is $40,000. It will generate $15,000 annually for the next four years. Assume that this company and its project have a beta of 2.0, the risk-free rate of return (ie., Rm) is 2%, and the market return (i.e., Rm) is 796?. How much is the NPV of this project? [Hint: As discussed, the CAMP model can be used to estimate discount rate (r) in the NPV analysis equation). A) 5,555 B) 3,333 4,444 6,666

A company has a project with initial investment is $40,000. It will generate $15,000 annually for the next four years. Assume that this company and its project have a beta of 2.0, the risk-free rate of return (ie., Rm) is 2%, and the market return (i.e., Rm) is 796?. How much is the NPV of this project? [Hint: As discussed, the CAMP model can be used to estimate discount rate (r) in the NPV analysis equation). A) 5,555 B) 3,333 4,444 6,666

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 5TP: Giorgio Co. is looking at an investment project with an internal rate of return of 10.8%. The...

See similar textbooks

Similar questions

A company has a project with initial investment is $40,000. It will generate $15,000 annually for the next four years. Assume that this company and its project have a beta of 2.0, the risk-free rate of return (i.e., R is 29%, and the market return (Le., R is 796?. How much is the NPV of this project? [Hint: As discussed, the CAMP model can be used to estimate discount rate () in the NPV analysis equation). 5,555 B) 3,333 C) 4,444 D) 6,666
Currently under consideration is a project 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%. The project is actually expected to earn an annual rate of return 11%. a. Calculate the required rate of return using the capital asset pricing model (CAPM). b. Assume that the market return drops by 1%, what would be the required rate of return?
You are considering an investment. After a great deal of careful research you determine that the expected return on the investment is 15% per annum. You also estimate the beta to be 2.0. The risk-free rate of interest is 3% and the return on the market is expected to be 13%. Should you accept the project? Explain.
Your firm has a risk-free investment opportunity with an initial investment of $162,000 today and receive $175,000 in one year. For what level of interest rates is this project attractive? The project will be attractive when the interest rate is any positive value less than or equal to _______% ?
A project has two possible outcomes. The good outcome returns $9,000 next year and occurs 59% of the time. The bad outcome is total failure, retuming $0 , the rest of the time. If the risk free interest rate is 3.2% , the expected market return is 12.6% , and the project beta is 1.1 , what is the price of the project today?
Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Project Cash Flow Today ($) Cash Flow in One Year ($) A -10 20 В 20 -10 Suppose all cash flows are certain and the risk-free interest rate is 10%. a. What is the NPV of each project? b. If the firm can choose only one of these projects, which should it choose? c. If the firm can choose any two of these projects, which should it choose?
Your firm has a risk-free investment opportunity where it can invest $160,000 today and receive $170,000 in one year. For what level of interest rate is this project attractive? The project will be attractive when the interest rate is any positive value less than or equal to ____________%? (Round to two decimal places.)
A project has two possible outcomes. The good outcome returns $8,000 next year and occurs 88% of the time. The bad outcome is total failure, returning $0, the rest of the time. If the risk free interest rate is 4.8%, the expected market return is 10.4%, and the project beta is 1.1, what is the price of the project today?
Suppose that the market return is 13.3% per year and the risk free rate averaged 4%. The risk free rate is now 5%. You are considering a project with the same risk as the market. What should its discount rate be?
Suppose you are the financial manager of a company, and there are three potential projects for investment. The risk free rate is 2%. The market risk premium is 6%. The beta of the company is 0.6. You need to invest $100 today for Project A, and project A is expected to provide a cash flow of $6 a share forever. The beta for this project is 0.75. You need to invest $105 today for Project B, and project B is expected pay $3.5 next year. Thereafter, payment growth is expected to be 3% a year forever. The beta for this project is 0.7. You need to invest $175 today for project C, and project C is expected to pay $1.25, $3.80, and $3.00 over the next three years, respectively. Starting in year 4 and thereafter, dividend growth is expected to be 3.5% a year forever. The beta for this project is 0.5. (a1) What's the expected return of the market portfolio? And what's the beta for this market portfolio? (a2) What is the discount rate for each project?(a3) which project(s) will you invest? And…
A project has a forecasted cash flow of $121 in year 1 and $132 in year 2. The interest rate is 8%, the estimated risk premium on the market is 10.25%, and the project has a beta of 0.61. If you use a constant risk-adjusted discount rate, answer the following:a. What is the PV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the certainty-equivalent cash flow in year 1 and year 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.) c. What is the ratio of the certainty-equivalent cash flows to the expected cash flows in years 1 and 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
A project with an initial cost of GH¢ 10,000 has the following forecasted cash flows. Years Cash flows 1 4000 2 6000 3 5000 4 3000 The estimated project beta is 1.5 and the market return is 16%. The risk free rate is 7%. Estimate the opportunity cost of capital of the project. What is the CEQ cash flow of the project? What is the ratio of CEQ cash flow to the expected cash flow in each case? Why does this ratio declines?