Answer:
A) $560 million
Explanation:
First lets calculate the NPV of the cash stream by this investment,
PV Cash stream = Cash flow/ (r-g), where r = avg cost of capital and g = growth of the cash stream.
PV = 50 / (0.09 - 0.04) = $1000 million
We assume that external finance issuance costs are payable as a part of initial outlay of the project and so,
Total initial outlay = 420 + 20 = $440 million
NPV of the project then,
NPV = 1000 - 440 = $560 million
Hope that helps.
Answer:
- Single asset = Coefficient of Variation
- Portfolio = Beta
Explanation:
When dealing with standalone risk, coefficient of variation is best because it shows the amount by which the asset's returns might deviate from the average returns of the market.
As for portfolio assets that are well diversified, the best measure would be beta because diversified portfolios deal with systematic risk and beta shows the movement of the portfolio in relation to the market and so will show that systematic risk.
Answer:
a) If manager weighs factors equally, the composite factor rating scores will be A = 5.6, B = 6.3, and C = 6.3 approximately. B and C are equal and better than A in terms of highest average score.
b) When double weights are assigned to business services and construction costs, the composite factor rating scores will be A = 5.9, B = 6.1, and C = 6.0 approximately. B is the best in terms of highest average score.
Explanation:
Composite Factor Rating scores are obtained by obtaining the mean or average of the scores under each location in order to give data points that can be used for making decisions.
The assignment of weights will differentiate the factors and change the decision outcome.
An excel copy is attached showing the derivations for a and b.