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grin007 [14]
3 years ago
10

you are a consultant to a firm evaluating an expansion of its current business. The cash flow forecasts (in millions of dollar)

for the project as follows: on the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.30. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 15% what is the net present value of the project
Business
1 answer:
timama [110]3 years ago
5 0

Question

you are a consultant to a firm evaluating an expansion of its current business. The cash flow forecasts (in millions of dollar) for the project as follows:

Year     cashflow

0           -100

1-10            15

0n the basis of the behavior of the firm's stock, you believe that the beta of the firm is 1.30. Assuming that the rate of return available on risk-free investments is 5% and that the expected rate of return on the market portfolio is 15% what is the net present value of the project

Answer:

NPV= -$32.58

Explanation:

The net present value of the investment is the cash inflow from the investment discounted at required rate of return. The required rate of return can be determined using the the formula below:

Ke= Rf +β(Rm-Rf)  

Ke =? , Rf- 5%,, Rm-15%, β- 1.30

Ke=5% + 1.30× (15-5)=  18%

The NPV = Present value of cash inflow - initial cost

 =  A×(1-(1+r)^(-10)/r  - initial cost

A- 15, r-18%

NPV = 15× (1-1.18^(-10)/0.18 - 100= -32.58

NPV = -$32.58

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Explanation:

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Marat540 [252]

Answer:

True

Explanation:

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4 0
3 years ago
It is necessary for all economic systems to provide people with goods and services and also restrict them from getting as much o
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Answer:

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This is because providing as many goods and services as they want may lead to a reduction in efficiency. Economic efficiency is achieved when resources are allocated in such a way that there is no wastage and resources are allocated to most valued use.

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8 0
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I hope this answered your question. If you have any more questions feel free to ask away at Brainly.

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