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OLEGan [10]
3 years ago
7

A 3-year project is expected to produce a cash flow of $82,400 in the first year and $148,600 in the second year. The project ha

s a present value of $303,764.34 at a discount rate of 12.75 percent. What is the expected cash flow in the third year of the project
Business
1 answer:
givi [52]3 years ago
3 0

Answer:

$163,100

Explanation:

First find the present value of cashflows at year 1 and 2

<u>PV of  $82,400;</u>

PV = FV/(1+r)^n

PV = 82,400/(1.1275)^1

PV = $73082.0399

<u>PV of  $148,600;</u>

PV = FV/(1+r)^n

PV = 148,600 /(1.1275)^2

PV = $116,892.2473

From the cumulative present value of 303,764.34, find the balance after deducting the above PVs;

PV of cashflow yr3 = $303,764.34 -$73082.0399 -$116,892.2473

PV of cashflow yr3 = $113,790.053

Next, calculate year 3's cashflow;

Year 3 cashflow = 113790.053(1.1275)^3

Year 3 cashflow = $163,099.996

Expected cashflow in third year is approximately $163,100

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Explanation:

Using the Accrual Method of Accounting means that revenue is only to be recorded when it is earned i.e. when services have been delivered.

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7 0
3 years ago
Domino's Pizza was 50 years old in 2010. Visit the company's business-related website (www.dominosbiz) and read the company prof
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Consider the following paragraph I wrote

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4 0
3 years ago
1. You have a portfolio that is invested 21% in Stock A, 34% in Stock B, and 45% in Stock C. The betas of the stocks are .66, 1.
MrMuchimi

Answer:

1.

Portfolio Beta = 1.225 rounded off to 1.23

Option e is the correct answer.

2.

r = 0.13338 or 13.338% rounded off to 13.34%

Explanation:

1.

The portfolio beta is a function of the weighted average of the individual stocks' betas that form up the portfolio. To calculate the beta of a portfolio, we use the following formula,

Portfolio Beta = wA * Beta of A  +  wB * Beta of B  + ... + wN * Beta of N

Where,

w is the weight of each stock

Portfolio Beta = 0.21 * 0.66  +  0.34 * 1.21  +  0.45 * 1.5

Portfolio Beta = 1.225 rounded off to 1.23

2.

Using the CAPM, we can calculate the required rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.

The formula for required rate of return under CAPM is,

r = rRF + Beta * (rM - rRF)

Where,

rRF is the risk free rate

rM is the market return

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r = 0.13338 or 13.338% rounded off to 13.34%

3 0
3 years ago
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