Question
In: Finance
A project has the following forecasted cash flows: Cash Flows ($ thousands) C0 C1 C2 C3...
A project has the following forecasted cash flows:
| Cash Flows ($ thousands) | |||
| C0 | C1 | C2 | C3 |
| −125 | +67 | +85 | +75 |
The estimated project beta is 1.55. The market return rm is 17%, and the risk-free rate rf is 7%.
a. Estimate the opportunity cost of capital and the project’s PV (using the same rate to discount each cash flow). (Do not round intermediate calculations. Enter your cost of capital answer as a percent and enter your PV answer in thousands. Round your answers to 2 decimal places.)
| Cost of capital | % | |
| PV | $ | |
b. What are the certainty-equivalent cash flows in each year? (Do not round intermediate calculations. Enter your answers in thousands rounded to 2 decimal places.)
| Year | Certainty-Equivalent Cash Flow |
| 1 | $ |
| 2 | $ |
| 3 | $ |
c. What is the ratio of the certainty-equivalent cash flow to the expected cash flow in each year? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
| Year | Ratio |
| 1 | |
| 2 | |
| 3 | |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A project has the following forecasted cash flows: Cash Flows ($ thousands) C0 C1 C2 C3...
A project has the following forecasted cash flows:
Cash Flows ($ thousands)
C0
C1
C2
C3
−155
+95
+115
+105
The estimated project beta is 1.51. The market return
rm is 15%, and the risk-free rate
rf is 3%.
a. Estimate the opportunity cost of capital and
the project’s PV (using the same rate to discount each cash flow).
(Do not round intermediate calculations. Enter your cost of
capital answer as a percent and enter your PV answer in thousands....
A project has the following forecasted cash flows: Cash Flows ($ thousands) C0 C1 C2 C3...
A project has the following forecasted cash flows:
Cash Flows ($ thousands)
C0
C1
C2
C3
−125
+67
+85
+75
The estimated project beta is 1.55. The market return
rm is 17%, and the risk-free rate
rf is 7%.
a. Estimate the opportunity cost of capital and
the project’s PV (using the same rate to discount each cash flow).
(Do not round intermediate calculations. Enter your cost of
capital answer as a percent and enter your PV answer in thousands....
A project has the following forecasted cash flows: Cash Flows ($ thousands) C0 C1 C2 C3...
A project has the following forecasted cash flows: Cash Flows ($
thousands) C0 C1 C2 C3 −190 +130 +150 +140 The estimated project
beta is 1.58. The market return rm is 18%, and the risk-free rate
rf is 5%.
a. Estimate the opportunity cost of capital and the project’s PV
(using the same rate to discount each cash flow). (Do not round
intermediate calculations. Enter your cost of capital answer as a
percent and enter your PV answer in thousands....
A project has the following forecasted cash flows: Cash Flows Thousands of dollars C0 C1 C2 C
A project has the following forecasted cash flows:
Cash Flows
Thousands of dollars
C0 C1 C2 C3
-100 40
60
50
The investor expected rate of return is 10%. The cost of capital
is 12%.
Required:
What will you choose to be the discount rate? Why?
Please calculate the payback period (PP) and return on
investment (ROI).
Please calculate NPV，PVI and IRR..
Make decision based on the above calculation and explain the
reasons.
David said that the profit is the same as...
Cash flows of Project A and B are as following: Project C0 C1 C2 C3 C4...
Cash flows of Project A and B are as following:
Project
C0
C1
C2
C3
C4
C5
A
-9000
2000
3000
4000
5000
6000
B
-11000
2000
3000
4000
5000
6000
Compute the
payback periods for the following two projects.
Payback period
for A = _________ years; for B __________years
If the discount
rate is 10%, what is the discounted payback period?
Discounted
payback period for A=_________ years; for B __________years
Hamstring Inc. is considering a project with the following cash flows: C0 C1 C2 C3...
Hamstring Inc. is considering a project with the following cash
flows:
C0 C1 C2
C3 C4
$(25,000) $10,000 $12,000 $5,000 $8,000
The company is reluctant to consider projects with paybacks
of more than three years. If projects pass the payback screen, they
are considered further by means of the NPV and IRR methods. The
firm's cost of capital is 9%.
a. What is the project 's payback period? Should the
project be considered further?
b. What is the project's...
Consider the following cash flows: C0 / C1/ C2 /C3 /C4 ? $ 27 / +...
Consider the following cash flows:
C0 / C1/ C2 /C3 /C4
? $ 27 / + $ 24 / + $ 24 / + $ 24 / ? $ 46
a. Which two of the following rates are the IRRs of this
project? (You may select more than one answer. Single click the box
with the question mark to produce a check mark for a correct answer
and double click the box with the question mark to empty the box...
Consider the following two mutually exclusive projects: Cash Flows ($) Project C0 C1 C2 C3 A...
Consider the following two mutually
exclusive projects:
Cash Flows ($)
Project
C0
C1
C2
C3
A
-$100
+$60
+$60
+$60
B
-$100
----
----
+$208.35
Calculate the NPV of each project for a discount rate of
14%.
What is approximately the IRR for each project individually?
Use the IRR cross-over method to determine which of the projects
you should accept (describe the correct decision rule describing
when you pick A versus B based on what discount rate).
Consider the following information: Cash Flows ($) Project C0 C1 C2 C3 C4 A –6,300 2,300...
Consider the following information:
Cash Flows ($) Project C0 C1 C2 C3 C4
A –6,300 2,300 2,300 2,000 0
B –1,600 0 1,000 3,300 4,300
C –3,700 2,300 1,000 1,800 1,300
a. What is the payback period on each of the above projects?
(Round your answers to 2 decimal places.)
Project Payback Period
A year(s)
B year(s)
C year(s)
b. Given that you wish to use the payback rule with a cutoff
period of two years, which projects would you...
Consider the following projects: Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A −2,000...
Consider the following projects:
Cash Flows ($) Project C0 C1 C2 C3 C4 C5
A −2,000 2,000 0 0 0 0
B −4,000 2,000 2,000 5,000 2,000 2,000
C −5,000 2,000 1,300 0 2,000 2,000
a. If the opportunity cost of capital is 12%, which project(s)
have a positive NPV?
Positive NPV project(s)
Project A
Project B
Project C
Projects A and B
Projects A and C
Projects B and C
Projects A, B, and C
No project
b. Calculate...
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