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Practice problem--it's very helpful ~

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Department
Economics
Course
ECO359H5
Professor
Sun
Semester
Winter

Description
ECO3592011 UniversityofToronto PracticeProblems DepartmentofEconomics ECO 359 Practice Problems 2 Solution Guidelines 1. (a) Project A. (b) NPV of A is N $669, NPV of B is N $751. (c) For (a): interim cash flows can be reinvested at the respective IRR. For (b): they can be reinvested at the required rate of return r = 10%. 2. The discount rate for the project is equal to the expected return for the security, R , since the S project has the same risk as the firm as a whole. Apply the CAPM to express the firms required return, R S in terms of the firms beta, , the risk-free rate, R F and the expected market return, . - 0 : . ; L HHM - H{M 0 HH{ L IKMM Calculate the NPV of the cash inflows, using 13.55%. as the discounted rate: & L .-J2-=0-J4)O21)J2 - (#:I - N; ,KLHHH L .,IJHHHHH - (#:I - IKMM ; L .,IJHHHHH - ,IIO
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