You are a consultant to a large manufacturing corporation considering a project with the following net...

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Finance

You are a consultant to a large manufacturing corporationconsidering a project with the following net after-tax cash flows(in millions of dollars):

Years from Now After-Tax CF
0 –23
1–9 10
10 20

The project's beta is 1.7. Assuming r_f = 6%and E(r_M) = 16%.

a.
What is the net present value of the project? (Do notround intermediate calculations. Enter your answer in millionsrounded to 2 decimal places.)

Net present value million

b.
What is the highest possible beta estimate for the projectbefore its NPV becomes negative? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)

Highest possible beta value

Answer & Explanation Solved by verified expert

4.1 Ratings (629 Votes)

a As per CAPM expected return riskfree rate beta expected return on the market riskfree rate Expected return 6 17 16 6 Expected return 23 Project Discount rate 23000 Year 0 1 2 3 4 5 6 7 8 9 10 Cash flow stream 23 10 10 10 10 10 10 10 10 10 See Answer

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You are a consultant to a large manufacturing corporationconsidering a project with the following net after-tax cash flows(in millions of dollars):Years from NowAfter-Tax CF0–231–9101020The project's beta is 1.7. Assuming rf = 6%and E(rM) = 16%.a.What is the net present value of the project? (Do notround intermediate calculations. Enter your answer in millionsrounded to 2 decimal places.) Net present valuemillionb.What is the highest possible beta estimate for the projectbefore its NPV becomes negative? (Do not round intermediatecalculations. Round your answer to 2 decimal places.) Highest possible beta value