First and Goal Corporation’s stock returns have a covariance with the market portfolio of .0486. The standard deviation of the returns on the market portfolio is 19 percent and the expected market risk premium is 6.9 percent. The company has bonds outstanding with a total market value of $56.4 million and a yield to maturity of 6.6 percent. The company also has 5.6 million shares of common stock outstanding, each selling for $37. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 24 percent and Treasury bills currently yield 4 percent. The company is considering the purchase of additional equipment that would cost $56 million. The expected unlevered cash flows from the equipment are $18.5 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm. What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)
First and Goal Corporation’s stock returns have a covariance with the market portfolio of .0486. The standard deviation of the returns on the market portfolio is 19 percent and the expected market risk premium is 6.9 percent. The company has bonds outstanding with a total market value of $56.4 million and a yield to maturity of 6.6 percent. The company also has 5.6 million shares of common stock outstanding, each selling for $37. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 24 percent and Treasury bills currently yield 4 percent. The company is considering the purchase of additional equipment that would cost $56 million. The expected unlevered cash flows from the equipment are $18.5 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm. What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
Problem 2MAD
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
| First and Goal Corporation’s stock returns have a covariance with the market portfolio of .0486. The standard deviation of the returns on the market portfolio is 19 percent and the expected market risk premium is 6.9 percent. The company has bonds outstanding with a total market value of $56.4 million and a yield to maturity of 6.6 percent. The company also has 5.6 million shares of common stock outstanding, each selling for $37. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 24 percent and Treasury bills currently yield 4 percent. The company is considering the purchase of additional equipment that would cost $56 million. The expected unlevered cash flows from the equipment are $18.5 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm. What is the NPV of the project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) |
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub