Does the coo project have a positive or negative npv

Assignment Help Finance Basics
Reference no: EM13302125

The COO, remembering her financial management class, is skeptical of using the WACC to determine the discount rate for capital budgeting purposes. Even though the investment is completely within the scope of the firm's business and does not present any new risk profile, she thinks the CAPM should be used to determine an appropriate discount rate. Since this firm is not publicly traded (and therefore has no beta) you decide to use the average of the betas of three publicly-held, competing firms to calculate a proxy beta for this company.

Firm 1: 1.25; Firm 2: 1.3; Firm 3: 1.4

According to the CAPM, what should the discount rate be? Assume the risk free rate is the current 10-yr T-bill yield (which you will need to obtain). For the market return use 8%. Indicate what risk-free rate you used and how you found it, and round your discount rate to one decimal place.

Does the COO's project have a positive or negative NPV at the discount rate calculated via the CAPM? Use the following assumptions:

Year Operating Cost Savings (pre-tax)
1 57,000
2 49,000
3 47,000
4 45,000
5 42,000
6 31,000

Depreciation: 5 year, straight line, no salvage value.

Disposition: The machine is projected to be worthless at the end of six years and will cost $5,000 to dispose.

 

Reference no: EM13302125

Questions Cloud

Explain what is the peptide sequence : What is the mRNA sequence for the following segment of DNA: GACTATCCCATAGAG Based upon the mRNA sequence, what is the peptide sequence
What wavelength photon would have the same energy : An electron is confined to a box the size of a small atom, 0.12nm across. ?p, What wavelength photon would have the same energy
Determine the magnitudes of the velocity v and acceleration : A particle which moves in two-dimensional motion has coordinates given in inches by x=t^2-4t+20 and y=3sin2t, where the time t is in seconds. Determine the magnitudes of the velocity v and the acceleration a and the angle between these two vectors..
What would you pay for the following bond : What would you pay for the following bond: Coupon 8%, required yield 5% over the risk-free rate, remaining term: 12 years. At present, 12-year T-bills yield 4%.
Does the coo project have a positive or negative npv : Does the COO's project have a positive or negative NPV at the discount rate calculated via the CAPM? Use the following assumptions.
Determine the max and min capacitance of the capacitor : Suppose an RLC circuit must be created by choosing an inductor and capacitor to place in series with a 1200 ohm resistor. To tune in the AM band frequencies, calculate an appropriate value for the inductance and determine the max and min capacitance..
What is the hydrologic risk of occurring in the next 10years : Lake levels have been measured for the past 50 years at Cagles Mill Lake. The highest annual lake levels (in feet, mean sea level) on record are 887.5, 887.3, 886.5, 886.0, 885.9. The other 45 annual peaks are smaller.
What kind of paper is the national enquirer : Business Ethics The National Enquirer, Inc., is a Florida corporation with its principal place of business in Florida. It publishes the National Enquirer, a national weekly newspaper with a total circulation of more than 5 million copies. About 600,0..
What were the total dividends paid to shareholders : The previous year, its balance related earnings sheet showed $780 million of retained earnings. What were the total dividends paid to shareholders during the most recent year?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd