Answer:
10.5%
Explanation:
In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
where,
Risk free rate of return = 7%
Market rate of return = 14%
And, the beta is 0.5
So the expected return is
= 7% + 0.5 × (14% - 7%)
= 7% + 0.5 × 7%
= 7% + 3.5%
= 10.5%
Answer:
It can purchase at most, $18.13 per share.
Or 72.52 millions for the total 4,000,000 shares
Explanation:
We are given with the present value of the merger at Craftworks discount rate. The shares can be purchase at most at the same level of the present value of the increase in the free cash flow.
That way, the net present value will be zero and the merger will yield the 16% required.
72,520,000 Millions
4,000,000 shares outstanding
price per share 18.13
The crafworks shares can be purchase at most for 18.13 above this, it would yield the 16% required
Currently the share are at 16.25 so it could be possible to do the take-over
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Answer:
False
Explanation:
If an investment project can be repeated, i.e. its life cycle can be extended by reinvesting, the NPV of the project will change.
When considering two mutually exclusive projects, the NPV method should always be considered before the IRR as a means of evaluating which project should be carried out.
