Beta of a project. Vespucci is adding a project to the company portfolio and has the following information: the expected market return is 16.1%, the risk-free rate is 6.5%, and the expected return on the new project is 10.5%. What is the project's beta?
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Q: Beta of a project. Vespucci is adding a project to the company portfolio and has the following…
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Chapter 11, Question 1
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- Beta of a project. Magellan is adding a project to the company portfolio and has the following information: the expected market return is 12.7%, the risk-free rate is 2.4%, and the expected return on the new project is 16.5%. What is the project's beta? What is the project's beta? (Round to three decimal places.)An all-equity firm is considering the projects shown below. The T-bill rate is 4 percent and the market risk premium is 7 percent. Project Expected Return A Project A Project B Project C Project D 8.0% 19.0 13.0 17.0 Calculate the project-specific benchmarks for each project. (Round your answers to 1 decimal place.) O Project C O Project D Beta 0.5 1.2 1.4 % % % % If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s), will be incorrectly accepted? O Project A O Project BA 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?
- The risk free rate is 8 % and the expected return on the market portfolio is 16 %. A firm is considering a project with an estimated beta of 1.3. What is the required rate of return on the project? If the IRR is of the project is 19 %, what is the project alpha?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?An all-equity firm is considering the projects shown below. The T-bill rate is 3 percent and the market risk premium is 8 percent. Project Expected Return Beta A 8% 0.6 B 20 1.3 C 14 1.5 D 18 1.7 Calculate the project-specific benchmarks for each project. (Round your answers to 2 decimal places.) Project A: ____.__% Project B: ____.__% Project C: _____.__% Project D: ____.__% If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s), will be incorrectly accepted? Project A Project B Project C Project D
- 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…An all-equity firm is considering the projects shown below. The T-bill rate is 5 percent and the market risk premium is 9 percent. Project Expected Return Beta A 10% 0.5 B C D 15 1.2 17 1.4 21 1.6 Calculate the project-specific benchmarks for each project. (Round your answers to 2 decimal places.) Project A Project B % % Project C % Project D % If the firm uses its current WACC of 16 percent to evaluate these projects, which project, will be incorrectly rejected? Project A Project B O Project C Project DA 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 on the project? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Should the project be accepted? c. What is the required rate of return on the project if its beta is 1.90? (Do not round intermediate calculations. Enter your answer as a whole percent.) d. If the project's beta is 1.90, should the project be accepted?
- 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 296, 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 (r) in the NP analysis equation]. A) 5,555 B) 3,333 C) 4,444 D) 6,666A firm is considering a project that is expected to have a beta of 1.2. The risk-free rate is 8.3%. The expected return on the market portfolio is 16%. What is the required rate of return on the project by the investors?A project under consideration has an internal rate of return of 13% and a beta of 0.6. The risk-free rate is 8%, and the expected rate of return on the market portfolio is 13%. a. What is the required rate of return on the project? Note: Do not round intermediate calculations. Enter your answer as a whole percent. b. Should the project be accepted? c. What is the required rate of return on the project if its beta is 1.60? Note: Do not round intermediate calculations. Enter your answer as a whole percent. d. If project's beta is 1.60, should the project be accepted? a. Required rate of return b. Accept the project c. Required rate of return d. Accept the project % %