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 -38
1-9 12
10 24
The project's beta is 1.4. Assuming rf = 6% and E(rM) = 16% a.What is the net present value of the project? (Do not roundintermediate calculations. Enter your answer in millions rounded to2 decimal places.) b. What is the highest possible beta estimatefor the project before its NPV becomes negative? (Do not roundintermediate calculations. Round your answer to 2 decimalplaces.)

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3.9 Ratings (629 Votes)

1 As per CAPM expected return riskfree rate beta expected return on the market riskfree rate Expected return 6 14 16 6 Expected return 20 Discount rate 20000 Year 0 1 2 3 4 5 6 7 8 9 10 Cash flow stream 38 12 12 12 12 12 12 12 12 12 24 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 Now After Tax CF0 -381-9 1210 24The project's beta is 1.4. Assuming rf = 6% and E(rM) = 16% a.What is the net present value of the project? (Do not roundintermediate calculations. Enter your answer in millions rounded to2 decimal places.) b. What is the highest possible beta estimatefor the project before its NPV becomes negative? (Do not roundintermediate calculations. Round your answer to 2 decimalplaces.)