PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Chapter 9, Problem 10PS
Certainty equivalents* A project has a
- a. The PV of the project?
- b. The certainty-equivalent cash flow in year 1 and year 2?
- c. The ratio of the certainty-equivalent cash flows to the expected cash flows in years 1 and 2?
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A project has a forecasted cash flow of $121 in year 1 and $132 in year 2. The interest rate is 8%, the estimated risk premium on the market is 10.25%, and the project has a beta of 0.61. If you use a constant risk-adjusted discount rate, answer the following:
What is the PV of the project?
What is the certainty-equivalent cash flow in year 1 and year 2?
What is the ratio of the certainty-equivalent cash flows to the expected cash?
A project has a forecasted cash flow of $121 in year 1 and $132 in year 2. The interest rate is 8%, the estimated risk premium on the market is 10.25%, and the project has a beta of 0.61. If you use a constant risk-adjusted discount rate, answer the following:a. What is the PV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What is the certainty-equivalent cash flow in year 1 and year 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
c. What is the ratio of the certainty-equivalent cash flows to the expected cash flows in years 1 and 2? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow: -$6,800 $ 1,010 $2,210 $1,410 $1,410 $1,210 $ 1,010 Use the IRR decision rule to evaluate this project. IRR %?
Chapter 9 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 9 - (VAR.P and STDEV.P) Choose two well-known stocks...Ch. 9 - (AVERAGE, VAR.P and STDEV.P) Now calculate the...Ch. 9 - (SLOPE) Download the Standard Poors index for the...Ch. 9 - Company cost of capital Suppose a firm uses its...Ch. 9 - Prob. 2PSCh. 9 - Definitions Define the following terms: a. Cost of...Ch. 9 - Asset betas EZCUBE Corp. is 50% financed with...Ch. 9 - Prob. 6PSCh. 9 - Fudge factors John Barleycorn estimates his firms...Ch. 9 - Asset betas Which of these projects is likely to...
Ch. 9 - True/false True or false? a. The company cost of...Ch. 9 - Certainty equivalents A project has a forecasted...Ch. 9 - Company cost of capital The total market value of...Ch. 9 - Company cost of capital Nero Violins has the...Ch. 9 - Measuring risk The following table shows estimates...Ch. 9 - Company cost of capital You are given the...Ch. 9 - Measuring risk Look again at Table 9.1. This time...Ch. 9 - Prob. 16PSCh. 9 - WACC Binomial Tree Farms financing includes 5...Ch. 9 - Prob. 18PSCh. 9 - Prob. 19PSCh. 9 - Prob. 20PSCh. 9 - Certainty equivalents A project has the following...Ch. 9 - Prob. 22PSCh. 9 - Beta of costs Suppose that you are valuing a...Ch. 9 - Fudge factors An oil company executive is...
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