Question
In: Finance
You are a consultant to a large manufacturing corporation that is considering a project with the...
You are a consultant to a large manufacturing corporation that is considering a project with the following net after-tax cash flows (in millions of dollars):
| Years from Now | After-Tax Cash Flow |
| 0 | –90 |
| 1–10 | 17 |
The project's beta is 1.2.
a. Assuming that rf = 4% and E(RM) = 11%, what is the net present value of the project? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)
b. What is the highest possible beta estimate for the project before its NPV becomes negative? (Round your answer to 2 decimal places.)
Solutions
jeff jeffy answered 11 months agoRelated Solutions
You are a consultant to a large manufacturing corporation that is considering a project with the...
You are a consultant to a large manufacturing corporation that
is considering a project with the following net after-tax cash
flows (in millions of dollars):
Years from Now
After-Tax Cash Flow
0
-100
1-10
18
The project's beta is 1.1.
a. Assuming that rf = 5%
and E(rM) = 10%, what is the net
present value of the project? (Do not round intermediate
calculations. Enter your answer in millions rounded to 2 decimal
places.)
Net Present Value
b. What is...
You are a consultant to a large manufacturing corporation considering a project with the following net...
You are a consultant to a large manufacturing corporation
considering a project with the following net after-tax cash flows
(in millions of dollars):
Years from Now
After-Tax CF
0
–24
1–9
10
10
20
The project's beta is 1.8. Assuming rf = 4% and
E(rM) = 14%
a. What is the net present value of the
project? (Do not round intermediate calculations. Enter
your answer in millions rounded to 2 decimal
places.)
b. What is the highest possible beta estimate...
You are a consultant to a large manufacturing corporation considering a project with the following net...
You are a consultant to a large manufacturing corporation
considering a project with the following net after-tax cash flows
(in millions of dollars).
Years From Now
After-tax CF
0
-36
1-9
12
10
24
The project's beta is 1.5. Assuming rf = 4% and E(rm) = 12%
a. What is the net present value of the project? (Do not round
intermediate calculations. Enter your answer in millions rounded to
2 decimal places)
b. What is the highest possible beta estimate...
You are a consultant to a large manufacturing corporation considering a project with the following net...
You are a consultant to a large manufacturing corporation
considering a project with the following net after-tax cash flows
(in millions of dollars): Years from Now After-Tax CF 0 –36 1–9 12
10 24 The project's beta is 1.5. Assuming rf = 4% and E(rM) = 12%
a. What is the net present value of the project? (Do not round
intermediate calculations. Enter your answer in millions rounded to
2 decimal places.) Net present value 24.72 million b. What is...
You are a consultant to a large manufacturing corporation considering a project with the following net...
You are a consultant to a large manufacturing corporation
considering 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 rf = 6%
and E(rM) = 16%.
a.
What is the net present value of the project? (Do not
round intermediate calculations. Enter your answer in millions
rounded to 2 decimal places.)
Net present value
million
b.
What is the...
You are a consultant to a large manufacturing corporation considering a project with the following net...
You are a consultant to a large manufacturing corporation
considering 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 round
intermediate calculations. Enter your answer in millions rounded to
2 decimal places.) b. What is the highest possible beta...
You are a consultant to a large manufacturing corporation considering a project with the following net...
You are a consultant to a large manufacturing corporation
considering a project with the following net after-tax cash flows
(in millions of dollars): Years from Now After-Tax CF 0 –36 1–9 12
10 24 The project's beta is 1.5. Assuming rf = 4% and E(rM) = 12%
a. What is the net present value of the project? (Do not round
intermediate calculations. Enter your answer in millions rounded to
2 decimal places.) Net present value million b. What is the...
You work as the treasurer of a large manufacturing corporation where earnings are down substantially as...
You work as the treasurer of a large manufacturing corporation
where earnings are down substantially as a result of COVID-19. In
an environment where interest rates are going to decline over the
next three to six months, you want to invest in fixed-income
securities to make as much money as possible for the firm. The
board recommends investing in one of the following
securities:
• Three-month Treasury Bill • Twenty-year Corporate Bonds •
Twenty-year zero-coupon Treasury Bonds
Describe a suitable...
You work as the treasurer of a large manufacturing corporation where earnings are down substantially as...
You work as the treasurer of a large manufacturing corporation
where earnings are down substantially as a result of COVID-19. In
an environment where interest rates are going to decline over the
next three to six months, you want to invest in fixed-income
securities to make as much money as possible for the firm. The
board recommends investing in one of the following securities: •
Three-month Treasury Bill • Twenty-year Corporate Bonds •
Twenty-year zero-coupon Treasury Bonds
Describe a suitable...
Road Runner Corporation is considering an expansion of its manufacturing plant. The project would cost $30 million...
Road Runner Corporation is considering
an expansion of its manufacturing plant. The project
would cost $30 million in initial investment but it’s expected to
result in after tax cash flows to the firm of $3.5 million per year
for the next 14 years. You have the following
information about the firm’s capital structure and market
conditions:
Common
stock: 2
million shares outstanding
Current
market price is $35 per share
Par
value is $1 per share
Beta
= 1.2
Bonds: 90,000
bonds outstanding
8%
coupon...
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