Vijay Problem 12-33 CAPM and Valuation (LO3)You are considering the purchase of real estate that will provide perpetual income that should average $70,000 per year. How muchwill you pay for the property if you believe its market risk is the same as the market portfolio's? The T-bill rate is 5%, and the expectedmarket return is 8.0%.Property value

Beta of an asset measures the risk of the asset. The more the beta, the more will be the risk.Beta…

Answered: Problem 12-33 CAPM and Valuation (LO3)…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 16PROB

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Problem 12-21 WACC and NPV [LO 4] Ariana, Incorporated, is considering a project that will result in initial aftertax cash savings of $5.4 million at the end of the first year, and these savings will grow at a rate of 3 percent per year, indefinitely. The firm has a target debt-equity ratio of .53, a cost of equity of 13.3 percent, and an aftertax cost of debt of 6.7 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of +2 percent to the cost of capital for such risky projects. Calculate the required return for the project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What is the maximum cost the company would be willing to pay for this project? Note: Do not round
Question 4a) A firm has a choice between two investment projects, all of which involve an initial outlay of GH¢36,000. The returns at the end of the next 4 years are given below. If the interest rate is 15%, say whether each project is viable or not, and which is the best investment.Year Project A Project B1 15,000 5,0002 15,000 10,0003 15,000 20,0004 15,000 25,000All values are given in GH¢. b) A factory increase its production by 712% and produced 1290 tonnes. How many tonnes did she produce before? c) If we place GH¢100 in the savings account that yields 12% compounded quarterly, what nearest GH¢ would our investment grow to at the end of 5 years?
D3) 16. Consider a firm with a market value equal 100. The firm is financed with a zero- coupon bond with a face value of 100, maturing at the end of the year. At the end of the year the value of the firm can be either 130 or 80. The firm has 10 invested in one-year T-bills earning 10%. The firm has just discovered a new project. This project requires an investment of 10 and will be worth at the end of the year, either 8 (when the firm is otherwise worth 130) or 16 (when the firm is otherwise worth 80.) If this project is taken, what will happen to the value of the stock? Multiple Choice Increase by 4.67% increase by 3.33% decrease by 3.33% decrease by 10.00% none of the above.
Mf2. 200) Consider a strip mall in Jackson Heights, Queens that recently sold for a cap rate of 7.47%. It's NOI in the following year is $350,000 and is expected to grow at an annual rate of 2%. What is the implied IRR on this investment for the owners of the mall according to the Gordon Growth Dividend Discount model? Write your answer in percent, but do not include the % sign
Question 8 You are making a $100,000 investment and feel that a 10 percent rate of return is reasonable given the nature of the risks involved. You feel you will receive $50,000 in the first year, $55,000 in the second year, and $60,000 in the third year. You expect to pay out $65,000 as an additional investment in the fourth year. Can you accept this project? What is the main reason why? Group of answer choices No, the cash flows are unconventional No, the IRR is less than the required rate No, the NPV is -$8,407.90 Yes, the IRR is greater than the required rate Yes, the NPV is $80,383.85
Ch 7. Decision Trees. For questions 12 and 13, please use the following information: Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $28.6 million. If the DVDR fails, the present value of the payoff is $10.2 million. If the product goes directly to market, there is a 40 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.42 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 70 percent. The appropriate discount rate is 11 percent. Calculate the NPV of test marketing before going to market. Format answer as "XX,XXX,XXX.XX"
Ch 7. Decision Trees. For questions 12 and 13, please use the following information: Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $28.6 million. If the DVDR fails, the present value of the payoff is $10.2 million. If the product goes directly to market, there is a 40 percent chance of success. Alternatively, the company can delay the launch by one year and spend $1.32 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 70 percent. The appropriate discount rate is 12 percent. Calculate the NPV of going directly to market. Format answer as "XX,XXX,XXX.XX"
Mf2. Your firm is considering choosing either Project X or Project Y with the following cash flows: Year: 0. 1 2 3 4 Project X -$150,000 $75,000. $65,000 55,000 $45,000 Project Y -$180,000 $90,000. $70,000 $70,000 $50,000 Between a discount rate of ______ and ______ you can be sure your firm should prefer Project Y to Project X. a. 0%; 14.16% b. 0%; 10.25% c.14.16%; 24.26% d10.25; 22.63% e. 0%; 25%
4.11 Present Value and Multiple Cash Flows Specter Co. has identified an investment project with the following cash flows. If the discount rate is 10 percent, what is the present value of these cash flows? What is the present value at 18 percent? At 24%? Year Cash Flow $795 945 1325 1,860
Pm.3 Find out the profitability index (PI) of the following project assuming the required rate of return is 8%. Will you accept the project? Why? year 0 1 2 3 4 5 Cash Flow ($) -250,000 50,000 40,000 120,000 80,000 45,000 Group of answer choices Accept the project because the PI is equal to 1.06, which is larger than 0. Accept the project because the PI is equal to 0.98, which is larger than 0. Reject the project because the PI is equal to 1.06, which is larger than 1. Reject the project because the PI is equal to 0.98, which is lower than 1. Accept the project because the PI is equal to 1.06, which is larger than 1.
Q14. Without an abandonment option, a project is worth $15 million today. Suppose the value of the project is either $20 million one year from today (if product demand is high) or $10 million (if product demand is low). It is possible to sell off the project for $14 million if product demand is poor. Calculate the value of the abandonment option if the discount rate is 5 percent per year (in million, for illustration, if the answer is $21,553,100, then you should answer 21.5531)
9–16 Compute the (a) net present value, (b) internalrate of return (IRR), and (c) discounted payback period (DPB) for each of the following projects. The firm’s required rate of return is 14 percent. Year Project Alpha Project Beta 0 $(270,000) $(300,000) 1 120,000 0 2 120,000 (80,000) 3 120,000 555,000 Which project(s) should be purchased if they areindependent? Which project(s) should be purchased it they are mutually exclusive?

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