You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow 0 1-10 -100 +15 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assume that the rate of return available one wisk-free investments is 4% and that the expected rate of return on the market portfolio is 12%. a. What is the project IRR? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. What is the cost of capital for the project? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Does the accept-reject decision using IRR agree with the decision using NPV? a. IRR b. Cost of capital c. Does the accept-reject decision using IRR agree with the decision using NPV? Yes %

You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow 0 1-10 -100 +15 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assume that the rate of return available one wisk-free investments is 4% and that the expected rate of return on the market portfolio is 12%. a. What is the project IRR? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. What is the cost of capital for the project? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Does the accept-reject decision using IRR agree with the decision using NPV? a. IRR b. Cost of capital c. Does the accept-reject decision using IRR agree with the decision using NPV? Yes %

Name: You are a consultant to a firm evaluating an expansion of its current
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Description: You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for theproject are as follows:Years Cash Flow01-10-100+15On the basis of the behavior of the firm's stock, you believe t

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 25SP: Start with the partial model in the file Ch07 P25 Build a Model.xlsx on the textbook’s Web site....

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You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow 0 – 100 1 - 10 + 14 On the basis of the behavior of the firm’s stock, you believe that the beta of the firm is 1.35. Assume that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 13%. a. What is the project IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. What is the cost of capital for the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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