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 â100 1â10 +15
a. On the basis of the behavior of the firmâs stock, you believe that the beta of the firm is 1.4. Assuming that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 12%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.)
NPV $
b. Should the project be accepted? Yes No
| 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 | â100 |
| 1â10 | +15 |
| a. | On the basis of the behavior of the firmâs stock, you believe that the beta of the firm is 1.4. Assuming that the rate of return available on risk-free investments is 4% and that the expected rate of return on the market portfolio is 12%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) |
| NPV | $ |
| b. | Should the project be accepted? | ||||
|
Related questions
| Consider this project with an internal rate of return of 20.6%. The following are the cash flows of the project. |
| Year | Cash Flow | |||||
| 0 | +$220 | |||||
| 1 | â145 | |||||
| 2 | â145 | |||||
| What is project NPV if the discount rate is 14%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| NPV | $ |
| Should you accept the project? | ||||
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| A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: |
| Year | Cash Flow | ||
| 0 | â$ | 28,600 | |
| 1 | 12,600 | ||
| 2 | 15,600 | ||
| 3 | 11,600 | ||
| What is the NPV for the project if the required return is 11 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| NPV | $ |
| At a required return of 11 percent, should the firm accept this project? | ||||
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| What is the NPV for the project if the required return is 25 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| NPV | $ |
| At a required return of 25 percent, should the firm accept this project? | ||||
|
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| A firm evaluates all of its projects by using the NPV decision rule. At a required return of 10 percent, the NPV for the following project is $___________ and the firm should accept / reject the project. At a required return of 29 percent, the NPV is $____________ and the firm should reject / accept the project. (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) |
| Year | Cash Flow |
| 0 | ?$27,000 |
| 1 | 23,000 |
| 2 | 16,000 |
| 3 | 9,000 |
| | |
