You are considering acquiring a firm that you believe will generate cash flows of $100,000 per year for 10 years, after which you are expecting to sell it for $150,000. You will only use equity financing for this project. The beta of the firm is believed to be .75. Of course, you know these cash flows are uncertain. All these cash flows are subject to a 25% corporate tax rate.    a) How much is the firm’s worth if the risk-free rate is 5% and the expected market return is 12%? Show your work.    b) If the actual beta of the firm turns out to be .50, by how much will you have valued the firm incorrectly?    c) If it turns out that you over-projected the cash flows by 2%, by how much will you have valued the firm incorrectly?

The value of a firm's future cash flows is estimated at 230M. The continuously compounded risk-free rate is 3%. The duration of firm's debt is 11 years. The face value of the firm's debt is 280M. The volatility of firm cash flows is 0.22. The firm pays no dividends. Use the notion of equity as a call option on the value of the firm. Let the firm now accept a project that has an NPV of -10M and increases the volatility of the firm to 0.30. What is the new value of the firm's equity?

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 100 1-10 14 On the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.41. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 13%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places.) Net present value million

You are considering a risky investment that you expect will either be worth 115,000 in 1 year, or 65,000, with probabilities of 0.65 and 0.35 for each outcome, respectively. You could invest in riskless T-bills at 0.058. If you invest in this risky investment, you would expect to earn a risk premium of 0.091 Given this information, what would you be willing to pay for this investment? 84,856 78,059 79,001 73,655 82,693

Royal Bank of Belgium (RBB) will be worth €100 million or €120 million with equal probability in one year. RBB is highly leveraged and has bonds outstanding promising to pay €90 million next year. RBB is considering a risky project that will payoff €50 million or -€65 million with equal probability. Would RBB’s shareholders want you to engage in the risky project? What is the expected payoff to RBB’s existing shareholders? How would your answers change if the bondholders could convert the bond to 80% of RBB’s equity?

A risky $420,000 investment is expected to generate the following cash flows: Year    1    2    3    4$    102,700        $    163,030        $    160,824        $    135,200    If the firm’s cost of capital is 12 percent, should the investment be made?. Use a minus sign to enter a negative value, if any. Round your answer to the nearest dollar.NPV: $   Should The investment   be made? An alternative use for the $420,000 is a four-year U.S. Treasury bond that pays $25,200 annually and repays the $420,000 at maturity. Management believes that the cash inflows from the risky investment are equivalent to only 70 percent of the certain investment, which pays 6 percent. Should the investment be made? Use Appendix B to answer the question. Do not round other intermediate calculations. NPV: $   Should The investment  be made?

A firm's financial managers are evaluating two potential investments with a cost of $10,000 each. They forecast returns of $3,000 per year for 5 years for Investment A and $4,000 per year for 5 years for Investment B. The returns are more uncertain for B than for A. Which of the following is true? Investment A is better than B according to shareholder wealth maximization criterion. Investment B is better than A according to shareholder wealth maximization criterion. Investment A is better than B according to the profit maximization criterion. Investment B is better than A according to the profit maximization criterion.

You are planning to produce a new action figure called "Nia." However, you are very uncertain about the demand for the product. If it is a hit, you will have net cash flows of $80 million per year for three years (starting next year [i.e., at t = 1]). If it fails, you will only have net cash flows of $40 million per year for two years (also starting next year). There is an equal chance that it will be a hit or failure (probability = 50 percent). You will not know whether it is a hit or a failure until the first year's cash flows are in (i.e., at t = 1). You must spend $140 million immediately for equipment and the rights to produce the figure. If you can sell your equipment for $90 million once the first year's cash flows are received, calculate the value of the abandonment option. (The discount rate is 10 percent.) Multiple Choice $24.38 $18.56 -$5.82 $0.00

1. FastDrop economic value You are planning to place your money in safe government securities, which currently offer a 4% riskless rate of return. Before making this investment, an entrepreneur approaches you and asks you to purchase her new business venture, Fast Drop, a delivery service for legal documents that would produce a single cash inflow of $80,000 at the end of the year. You have determined that 6% is an appropriate risk premium for this investment. How much would you be willing to pay for Fast Drop?

Hi, I am working on this problem but don't know how to solve it. Can you please show the steps in solving this corporate finance question? Question below: Consider a risky investment, Security 1, that costs $950 today, and pays you $900 in one year if the economy is weak, which occurs with a probability of 50%, or $1100 in one year if the economy is strong, which occurs with a probability of 50%. What is the expected payoff? What is the expected return? What is the risk premium?