Silo Mills is an all-equity financed firm that has a beta of 1.18 and a cost of equity of 12.2 percent. The risk-free rate of return is 2.9 percent. The firm is currently considering a project that has a beta of 1.03 and a project life of six years. What discount rate should be assigned to this project? O 11.56% O 11.20% O 11.02% O 10.56%
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- Tomodachi Co plans to invest in either Projects M or N which are described below. The company's cost of capital is 15%, the market return is 15% and the risk-free rate is 5%. The beta for project M is 1.20 and the beta for project N is 1.40. What is the NPV for Project M when using the risk-adjusted discount rate method of project evaluation? Initial Investment Project M $700,000 Project N $780,000 Year 1 $300,000 $220,000 2 $300,000 320,000 3 $300,000 380,000 4 $300,000 460,000 or You must decide firm which of the proposed projects should be accepted for the upcoming year since only $6 million is available. Which projects should be accepted?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 BPronto 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%
- 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 DAn 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 DZiege Systems is considering the following independent projects for the coming year: Project A Required Investment Rate of Return Risk $4 million 13.25% High BCDEFGH 5 million 10.75 High 3 million 8.75 Low 2 million 8.50 Average 6 million 11.75 5 million 11.75 High Average 6 million 6.50 Н 3 million 10.50 Low Low If Ziege can only invest a total of $13 million, what would be the dollar size of its capital budget? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to two decimal places. $ million c. Suppose Ziege can raise additional funds beyond the $13 million, but each new increment (or partial increment) of $5 million of new capital will cause the WACC to increase by 1%. Assuming that Ziege uses the same method of risk adjustment, which projects should it now accept? Project A -Select- ✰ -Select- ◇ -Select- -Select- ✰ Project B Project C Project D Project E -Select- ✰ Project F -Select- ◊ Project G -Select- ◊ -Select- ✰…
- Salalah Wind Energy has taken up a new project with an initial investment of 50000 OMR.The expected future cashflow from the project over the next three years will be 22500 OMR, 23500 OMR and 24500 OMR.What is the profitability index if the discount rate is 7 percent? Select one: O a. 1.48 O b. 1.23 O c. 1.44 O d. 1.63 O e. None of these6. An all-equity firm is considering the following projects. The T-bill rate (risk-free rate) is 3.5 percent, and the expected return on the market is 11 percent. |Project Beta IRR 80 .95 9.4% X 10.9% 13.0% 14.2% Y 1.15 1.45 • Which projects have a higher expected return than the firm's 11 percent overall cost of capital? • Which projects should be accepted according to the risk (beta) of the project? • Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital was used as a hurdle rate?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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: Cash flow: 0 1 2 -$241,000 $66,400 $84,600 Payback Use the payback decision rule to evaluate this project. Note: Round your answer to 2 decimal places. years 4 3 $141,600 $122,600 Should the project be accepted or rejected? (Click to select) 5 $81,800
- Salalah Tourism Service has taken up a new project with an initial investment of 100000 OMR.The expected future cashflow from the project over the next three years will be 47000 OMR, 49000 OMR and 45000 OMR.What is the profitability index if the discount rate is 14 percent? Select one: O a. 1.44 O b. 1.18 O c. None of these O d. 1.09 O e. 1.12Your firm has identified three potential investment projects. The projects and their cash flows are shown here: Project Cash Flow Today ($) 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?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 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: Cash flow: 0 1 3 4 -$233,000 $65,600 $83,800 $140, 800 $121,800 MIRR Use the MIRR decision rule to evaluate this project. Note: Do not round intermediate calculations and round your final answer to 2 decimal places. 5 $81,000 %