Question 12 Suppose you are choosing between investing in a stock investment and a project, both with equal risks. The stock investment offers a 15% investment return; what is the opportunity cost of capital?
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Suppose you are choosing between investing in a stock investment and a project, both with equal risks. The stock investment offers a 15% investment return; what is the
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- Question 9 - Chap12 HW - Connect You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows: Years Cash Flow 0 – 100 1-10 + 14 On the basis of the behavior of the firm’s stock, you believe that the beta of the firm is 1.48. Assuming that the rate of return available on risk-free investments is 6% and that the expected rate of return on the market portfolio is 16%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places.)Question 2 You must choose between two investments, X and Y . The profitability index (PI), net present value (NPV) and internal rate of return (IRR) of the two investments are as follows: Criteria Investment X Investment Y NPV R44 000 −R22 000 PI 1,945 0,071 IRR 16,00% 8,04% Which investment(s) should you choose, taking all the above criteria into consideration, if the cost of capital is equal to 12% per year? [1] X [2] Y [3] Both X and Y [4] Neither X nor Y [5] Too little information to make a decision 17 DSC1630Start with the partial model in the file Ch15 P13 Build a Model.xlsx on the textbook’s Web site. Reacher Technology has consulted with investment bankers and determined the interest rate it would pay for different capital structures, as shown in the following table. Data for the risk-free rate, the market risk premium, an estimate of Reacher’s unlevered beta, and the tax rate are also shown. Reacher expects zero growth. Based on this information, what is the firm’s optimal capital structure, and what is the weighted average cost of capital at the optimal structure?
- Question 7 The Amelia Knight investment fund has a total capital of R120 000 invested in three shares: SharesReturnInvestedTechnological Sector25%R60 000Education Sector13%R30 000Mining Sector20%R30 000 The current risk-free rate is 5,5%. Market returns have the following estimated probability distribution for the next period: ProbabilityMarket return0,3–10%0,1 14%0,2 15%0,4 18% What is the beta coefficient of the investment fund? 1. 0,52 2. 0,80 3. 1,82 4. 4,92An all equity financed company is considering an independent project with an internal rate of return (IRR) of 11%. Assume the market risk premium is 6% and risk free rate is 3%. The beta of the company's stock is 1.4. Using the Capital Asset Pricing Model (CAPM), the company should accept this project. Question options: a) True b) FalseQUESTION 10 An investor wishes to construct a portfolio by borrowing 35 percent of his original wealth and investing all the money in a stock index. The return on the risk-free asset is 4.0 percent, and the expected return on the stock index is 15 percent. Calculate the expected return on the portfolio. a. 9.50 percent b. 18.25 percent c. 11.15 percent d. 15.00 percent e. 18.85 percent
- Suppose the market risk premium is 6.7% and the risk-free interest rate is 4.9%. Calculate the cost of capital of investing in a project with a beta of 1.3. Question content area bottom Part 1 The cost of capital is enter your response here%. (Round to two decimal places.)Question 6 Suppose that an investor has £1,000,000 to invest in a portfolio containing stocks A, B and a risk-free asset. The investor must invest all her money, and she is using the Capital Asset Pricing Model (CAPM) to make predictions of the expected return-beta relationship. Her objective is to create a portfolio that has an expected return of 14% and which has a beta of 0.75. If stock A has an expected return of 30% and a beta of 1.9, stock B has an expected return of 20% and a beta of 1.4, and the risk-free rate is 8%, how much money will she invest in stock A? Explain your answer and show your calculations.Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% i. What is each project’s Payback and discounted payback periods and interpret these numbers?ii. What is each project’s NPV?iii. What is each project’s IRR?iv. What is each project’s MIRR?v. From your answers to Parts a, b, c and d, which project would be selected?vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects.
- 12. The ABC Company is considering undertaking an investment that promises to have the following cash flows: period 0, −$50; period 1, $90. If the firm waits a year, it can invest in an alternative (that is, mutually exclusive) investment that promises to pay −$60 in period 1 and $100 in period 2. Assume a time value of money of 0.05. Which investment should the firm undertake? Use the net present value and the internal rate of return methods.Pick the option that has the highest Net Present Value, given we are in an investment environment having positive interest rates and positive costs of capital: $1 today. $1 tomorrow. $1 in one week. $1 in one year.Q-2. (a) A company has a 12% WACC. One of its core divisions is considering two mutually exclusive investments with the net cash flows given below. The division’s beta is βDIV = 1.6, risk free rate is kRF = 7% and risk-premium on the market is RPM = 6% Given the information above, you are required to answer the followings:i. What is each project’s Payback and discounted payback periods and interpret these numbers?ii. What is each project’s NPV?iii. What is each project’s IRR?iv. What is each project’s MIRR?v. From your answers to Parts a, b, c and d, which project would be selected?vi. What is each project’s profitability index?vii. What is difference between mutually exclusive and independent projects?viii. List the characteristics of a good capital budgeting technique.ix. Briefly explain the acceptance and rejection criteria for each technique regarding mutually exclusive and independent projects. (b) Kindly Provide brief answers to the following:i. What is the difference between…