A company has a project with initial investment is $40,000. It will generate $15,000 annually for the nextfour years. Assume that this company and its project have a beta of 2.0, the risk-free rate of return (i.e., Ris 29%, and the market return (Le., R is 796?. How much is the NPV of this project? [Hint: As discussed, theCAMP model can be used to estimate discount rate () in the NPV analysis equation).5,555B)3,333C)4,444D)6,666

A company has a project with initial investment is S40,000. 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. R is 2, 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 (n in the NPV analysis equation). A) 5,555 B) 3,333 C) 4,444 D) 6,666

A company has a project with initial investment is S40,000. 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. R is 2, 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 (n in the NPV analysis equation). A) 5,555 B) 3,333 C) 4,444 D) 6,666

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider an economy with three states which occur with probability (0.2, 0.2, 0.6). Suppose a firm has a project which generates the state dependent cash flows (100, 240, 220) at t=1. The investment costs are 170 at t=0. The firm has 170 at t=0. The market portfolio generates the payoff (200, 230, 260) and has an expected return of 10%. The risk free rate is 2%. Suppose the CAPM holds. (a) What is the beta of this project? (b) What is the net present value of the project? Explain whether the firm should conduct the project.
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: 1 2 3 4 Cash flow: -$5,000 $1,270 $2,470 $1,670 $1,670 5 6 $1,470 $1,270 Use the Pl decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.) PI Should it be accepted or rejected? O rejected O accepted
Assume a company is going to make an investment of $300,000 in a machine and the following are the cash flows that two different products would bring in years one through four. The company's required rate of return is 12%. What is the NPV for Option A? What is the NPV for Option B? What is the IRR for Option A? What is the IRR for Option B? PLEASE NOTE #1: The dollar amounts will be with "$" and commas as needed and rounded to two decimal places (i.e. $12,345.67). Round your IRR answers, in percentage format, to two decimal places (i.e. 12.34%). Given the above answers, which project should the company invest in? Project . PLEASE NOTE #2: Your answer is either "A" or "B" - capital letter, no quotes.
An analyst for a VC firm estimates that for a particular startup, the chances of a "home- run" are 10%, and if it happens, it will likely be 5 years from today. If the appropriate discount rate for this type of venture is 12.0%: a. What is the multiple of money for this investment? b. What is the hurdle rate for this investment?
You are considering a project that will cost $50,000 to set up, and will pay out $18,000 1,2,3 and 4 years from today. The unlevered beta for this project is 1.2, the risk free rate is 6.5%, and the expected return on the S&P 500 is 15%. Corporate taxes are 25%. a. What is the unlevered cost of equity for this project? b. What is the NPV of this project if you finance with all equity? c. You are considering borrowing $30,000 to finance this project, with repayment in 4 years. You could normally borrow at 7.5%. The Nebraska state government has offered to lend you the money at 6%. What is the adjusted present value of this project if you take the subsidized loan?
A project has a beta of 1.25, the risk-free rate is 5.0%, and the market rate of return is 9.2%. What is the project's expected rate of return?
You looked up the market risk return to be 12%. The risk-free rate of return is 2%, and General Motors has a beta of 1.2. According to the Capital Asset Pricing Model (CAPM), what is its expected return? A. 12.4% B. 14.0% C. 10.4% D. 13.2%. Need typed answer only .Please give answer within 45 minutes
A project under consideration has an internal rate of return of 16% and a beta of 0.9. The risk free rate is 6% and the expected rate of return on the market portfolio is 16%. A. What is the required rate of return? B. Should the project be accepted? C. What is the required rate of return on the project if it's beta is 1.90? D. If the projects beta is 1.90 should the project be accepted?
Pronto Email service has a beta of 0.95 and a cost of equity of 11.9 percent. The risk-free rate of return is 2.8 percent. The firm is currently considering a project that has a beta of 1.03 and a project life of 6 years. What discount rate should be assigned to this project? a. 13.33% b. 13.84% c. 12.67% d. 13.62%
A project under consideration has an internal rate of return of 17% and a beta of 0.5. The risk-free rate is 9% and the expected rate of return on the market portfolio is 17%. A. What is the required rate of return on the project? B. Should the project be accepted? C. What is the required rate of return on the project if the beta is 1.50? D. If projects beta is 1.50, should the project be accepted?
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?
(Capital Asset Pricing Model) CSB, Inc. has a beta of 0.758. If the expected market return is 10.5 percent and the risk-free rate is 6.5 percent, what is the appropriate expected return of CSB (using the CAPM)? The appropriate expected return of CSB is%. (Round to two decimal places.)

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