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You are working for the CFO of a small manufacturing company and are thinking about investing...

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Finance

You are working for the CFO of a small manufacturing company andare thinking about investing in new equipment. The cost of theproject is 9,500 today and it pays of 15,000 in ten years. Yourbeta is 0.2 and the market risk premium is 5%.

1. What is the NPV of the project if the 10-year Treasury(risk-free) rate is 2.6%?

2. What is the NPV if the 10-year Treasury rate is 3.1%?

Answer & Explanation Solved by verified expert
4.1 Ratings (573 Votes)
1 As per CAPM expected return riskfree rate beta Market risk premium Expected return 26 02 5 Expected return 36 Project Discount rate 0036 Year 0 1 2 3 4 5 6 7 8 9 10 Cash flow stream 9500 0 0 0 0 0 0 0 0 0 15000    See Answer
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