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ADM3415 Lecture Notes - Lecture 12: Risk Premium, Cash Flow, Msci

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indigodonkey866
14 Nov 2015
School
UNB
Department
Administration - UNBF
Course
ADM3415
Professor
Dr.Anne E.Mac Donnell

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Document Summary

You are involved in a project that requires an immediate investment in net working. At the end of the year the level of nwc is expected to be. At the end of year two it is expected to be ,000. How much is the inflow/outflow due to nwc in time 0, 1, and 2. Clearly identify the amount and state whether it is an inflow or an outflow. Cash flow for change in nwc (-10,000) outflow. Stock a has an expected return of 17%, its beta is 1. 5, and the risk-free rate is 5%. E(r) = rf + ( rmarket - rf ) Market risk premium = expected market return risk free rate. Project git er done has the following cash flows over its lifetime: Assuming a discount rate of 12%, find: the payback period. Payback period = 3. 19: the discounted payback period. 1+0. 171 (1+0. 2)4 + 4,700 (1+0. 2)5 = -944 (1+0. 2)2 + 4,700.

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Related Questions

You are evaluating a project for your company. You estimate the sales price to be $640 per unit and sales volume to be 3,400 units in year 1; 4,400 units in year 2; and 2,900 units in year 3. The project has a three-year life. Variable costs amount to $440 per unit and fixed costs are $270,000 per year. The project requires an initial investment of $395,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $64,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 30 percent and the required return on the project is 8 percent. What change in NWC occurs at the end of year 1?

$371,200

$128,000

$259,840

$89,600

Please show work so I will know how to solve in future.

You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $470 per unit and sales volume to be 1,000 units in year 1; 900 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $260 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $186,000 in assets, which will be depreciated straight-line to zero over the 3-year project life. The actual market value of these assets at the end of year 3 is expected to be $42,000. NWC requirements at the beginning of each year will be approximately 25 percent of the projected sales during the coming year. The tax rate is 35 percent and the required return on the project is 11 percent.
What change in NWC occurs at the end of year 1?

You are evaluating a product for your company. You estimate the sales price of product to be $260 per unit and sales volume to be 11,600 units in year 1; 26,600 units in year 2; and 6,600 units in year 3. The project has a 3 year life. Variable costs amount to $185 per unit and fixed costs are $216,000 per year. The project requires an initial investment of $372,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $56,000. NWC requirements at the beginning of each year will be approximately 16% of the projected sales during the coming year. The tax rate is 34% and the required return on the project is 11%. What will the year 2 cash flows for this project be?

$1,092,300

$1,216,300

$592,300

$1,655,000

My answer so far:

I got sale will go from 3,016,000 to 6,916,000 between years 1 and 2, but I don't know how to calculate how NWC will increase. Can yo give me the detail on how to compute so that I can use it for future problems, please?