An all-equity firm is considering two projects. Project A has a beta of 0.5 and the IRR if 12%. For project B the beta is 1.5 and the IRR is 15%. Assume that the T-bill is 3%, the market return is expected to be 13%, and the beta of the company is 1.1. a. Which project(s) should be accepted/rejected? b. If you use the WACC of the company has the hurdle rate, which project(s) should be accepted/rejected? c. Which projects would be incorrectly accepted or rejected if the firm’s overall cost of capital was used as the hurdle rate? d. Show graphically how the projects are placed relatively to the Security Market Line (SML).

Q: Royal Paints Limited is an all-equity frim without any debt. It has a beta of 1.21. The current risk…

A: The firm can accept a project if the expected return of the project is equal to or more than the…

Q: You are considering acquiring a firm that you believe can generate expected cash flows of $10,000 a…

A:

Q: what is the net present value of the project?

A: Net Present Value: It is a measure of absolute profitability used in capital budgeting. Thus, it is…

Q: You want to invest $46,000 in a portfolio with a beta of no more than 1.42 and an expected return of…

A: Amount of investment = $ 46000 Required Beta = 1.42 Required Expected Return = 13.7% Bay Corp.…

Q: A project under consideration has an internal rate of return of 13% and a beta of 0.6. The risk-free…

A: Internal rate of return is the rate at which net present value of the project (net present value of…

Q: Bloom and Co. has no debt or preferred stock ⎯ it is an all-equity firm ⎯ and has a beta of 2.0. The…

A: Here it is given that the expected return is 14% and the required rate of return (WACC) is 13%.

Q: You are a consultant to a firm evaluating an expansion of its current business. The cash-flow…

A: Formulas:

Q: You are asked to investigate the three investment options shown in the table below for your firm…

A: Firms MIRR= 12% IRR of Project A = 15% IRR of Project B = 7% IRR of Project C = 10% It is evident…

Q: Beta of a project. Magellan is adding a project to the company portfolio and has the following…

A: Expected return (Er) = 13.3% Market return (Rm) = 10.6% Risk free rate (Rf) = 2.4% Project beta = B

Q: a. How many shares must the venture capitalist receive to end up with 20% of the company? What is…

A: An investor that provides equity funding to the companies is known as a venture capitalist. These…

Q: Suppose two all equity-financed firms, Firm X and Firm Y, are considering the same new project that…

A: Computation of required rate of return of Firm X is as follows:=Risk free rate+Beta×Market risk…

Q: Highlander Inc., an all equity firm, has a project with the projected cash flows of -$109,000;…

A: Net Present Value (NPV) is a capital budgeting technique that uses a discount rate to bring all the…

Q: An all-equity firm is considering the following projects: Project Beta IRR W .83 9.4% .92 11.6 1.09…

A: Expected rate of return = Risk free rate + (Beta x (Expected market rate of return - Risk free…

Q: Royal Paints Limited is an all-equity frimwithout any debt. It has a beta of 1.21. The current risk…

A: Beta is a concept that measures the expected stock shift relative to shifts in the general market.

Q: A project under consideration has an internal rate of return of 13% and a beta of 0.8. The risk-free…

A: CAPM is the model of valuing the required rate of return an investor wants from a company, It is the…

Q: A project under consideration has an internal rate of return of 14% and a beta of 0.6. The risk-free…

A: Financial statements are statements which states the business activities performed by the company .…

Q: You are a consultant to a firm evaluating an expansion of its current business. The cash-flow…

A: Initial investment (I) = $100 million Annual cashflow (A) = $15 million n = 10 years Let r = IRR

Q: You are currently long on a portfolio of stocks that has a beta of 1.60. Given recent uncertainties,…

A: Given, Portfolio Beta = 1.60 Intend to reduce beta to 1.20 Current portfolio worth = RM 2.8 million…

Q: Aluminum maker Alcoa has a beta of about 1.07, whereas Hormel Foods has a beta of 0.84. If the…

A: The capital asset pricing model describes the relationship between systematic risk and the expected…

Q: An investment banker has recommended a $100,000 portfolio containing assets B, D, and F. $20,000…

A: In the given question we need to find out the beta of the portfolio. Portfolio beta is the weighted…

Q: Suppose that we have a firm whose current value is Kshs 1000 and that (given a multiplicative…

A: Here, Strike Price is Kshs 400 Spot Price is Kshs 1000 Up Movement is 12.75% Down Movement is 11.31%…

Q: A firm is considering a capital investment. The risk premium is 0.04, and it is considered to be…

A: A beta of a stock is the degree of responsiveness to movements in price with changes in the stock…

Q: ABC Corp. has a beta of 0.7. The risk-free rate is 6 percent and the expected return on the market…

A: Beta = 0.7 Risk Free Rate = 6% Expected Return on market = 13%   Project Beta = 1.2 Annual Payment =…

Q: The treasury bill rate is 4% and the market risk premium is 6%.  A. What are the project costs of…

A: The treasury bill rate is 4% The market risk premium is 6% A)  cost of capital for a new venture is…

Q: 6. An all-equity firm is considering the following projects. The T-bill rate (risk-free rate) is 3.5…

A: The capital asset pricing model describes the relationship between systematic risk and the expected…

Q: You still have $14,000 invested in TGT and $8,000 invested in JCP. If the beta of TGT is 0.65 and…

A: Portfolio refers to basket of different financial assets in which investment is made by single…

Q: Royal Paints Limited is an all-equity frim without any debt. It has a beta of 1.21. The current risk…

A: Capital Asset Pricing Model is defined as the relationship between the expected return for an assets…

Q: a. Consider the following outcomes both for the following scenarios with and without leverage for…

A: Here, Risk Free Rate is 4% Beta is 0 Cost of Capital is equal to Risk Free Rate i.e. 4%

Q: You are a consultant to a firm evaluating an expansion of its current business. The cash-flow…

A: A method of capital budgeting that helps to evaluate the present worth of cash flow and a series of…

Q: versus Project-Specific WACCS An all-equity firm is considering the projects shown below. The T-bill…

A: ACCORDING TO CAPM model: KE=RF+BETA×MARKET RISK PREMIUM GIVEN, FIRM WACC = 12% USING WACC AS A IRR…

Q: A project under consideration has an internal rate of return of 18% and a beta of 0.5. The risk-free…

A: Since you have asked a question with multiple parts, we will solve the first 3 parts for you. Please…

Q: Beta of a project. Magellan is adding a project to the company portfolio and has the following…

A: according to CAPM model: ke=rf+beta×rm-rf where, ke = expected return rf =risk free rate rm = market…

Q: An all-equity firm is considering the following projects: Project W X Y Z Beta .54 .91 1.09 1.83 IRR…

A: Expected return on investment is the probability of returns that is available to the investors. The…

Q: return

A: Introduction: To calculate the return which is expected by the investors, CAPM or capital asset…

Q: An all-equity firm is considering the following projects:   Project Beta IRR W .67       9.5 %   X…

A: We have to calculate expected return using CAPM formula.

Q: The risk-free rate of a capital-budgeting project a company wants to undergo is 5% and the expected…

A: given, Rf=5% Rm=10% beta =0.3 according to CAPM model: Return =rf+beta×rm-rfwhere,rf=risk free…

Q: If the firm uses its current WACC of 12 percent to evaluate the projects, which project(s), if any,…

A: It is the discounted rate that has been calculated by the company on the basis of which present…

Q: Southern Imports is an all-equity firm with a beta of 1.23. The firm is considering a new project…

A: The expected return is the minimum required rate of return which an investor required from the…

Q: A project under consideration has an internal rate of return of 18% and a beta of 0.5. The risk-free…

A: Part (a): Calculation of required rate of return on project: Answer: Required rate of return is 12%

Q: You are a consultant to a firm evaluating an expansion of its current business. The cash-flow…

A: Given: Year Cash Flow 0 -100 1 19 2 19 3 19 4 19 5 19 6 19 7 19 8 19 9 19…

Q: Beta of a project. Vespucci is adding a project to the company portfolio and has the following…

A: ACCORDING TO CAPM MODEL: KE=RF+BETA×RM-RF REARRANGING FOR BETA: BETA=KE-RFRM - RF

Q: Aluminum maker Alcoa has a beta of about 1.73, whereas Hormel Foods has a beta of 1.68. If the…

A: The firm with a higher beta would have a higher equity cost of capital. As per CAPM, the equity cost…

Q: The Curry Company is analyzing two capital investments. The financial vice president insists on…

A: Company should chose Project Y.

Q: Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an…

A: Risk free rate = 4% Beta = 0.85 Market risk premium = 5%

Q: Beta of a project.   Magellan is adding a project to the company portfolio and has the following​…

A: IF CAPM holds good, Expected Return of Project = Risk-free rate  + (Expected market  - Risk Free…

Q: Beta of a project. Vespucci is adding a project to the company portfolio and has the following…

A: Capital asset pricing model is the relationship between systematic return and return of all the…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.