Stock returns have covariance with the market portfolio
Course:- Financial Management
Reference No.:- EM13942944

Assignment Help
Assignment Help >> Financial Management

Neon Corporation’s stock returns have a covariance with the market portfolio of .0375. The standard deviation of the returns on the market portfolio is 20 percent, and the expected market risk premium is 9.1 percent. The company has bonds outstanding with a total market value of $55.16 million and a yield to maturity of 8.1 percent. The company also has 4.66 million shares of common stock outstanding, each selling for $25. The company’s CEO considers the firm’s current debt–equity ratio optimal. The corporate tax rate is 40 percent, and Treasury bills currently yield 5.0 percent. The company is considering the purchase of additional equipment that would cost $42.16 million. The expected unlevered cash flows from the equipment are $11.96 million per year for five years. Purchasing the equipment will not change the risk level of the firm.

Calculate the NPV of the project

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
Consider an asset that costs $624,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the
JJ Industries will pay a regular dividend of $3.1 per share for each of the next four years. At the end of the four years, the company will also pay out a $81 per share liquid
Assume that the planned sales for a men's apparel department is $150,000 and the national average sales per square foot for this department is $60. Using the sales productivit
James wants to buy a flat screen television for his new apartment. He has saved $700, but still needs $500 more. The bank where he has a checking and savings account will loan
DMA Corporation has bonds on the market with 16.5 years to maturity, a YTM of 6.3 percent, and a current price of $1,036. The bonds make semiannual payments and have a par val
Grantran Metrics is considering new equipment to run their service function for their customers. This equipment would run faster and less expensively than equipment currently
Dunbar LTC, a national nursing home chain is considering purchasing a smaller chain, Eastern Nursing homes. Dunbar's analysts project that the merger will result in free cash
Langley Enterprises pays a constant dividend of $1.50 a share. The company announced today that it will continue to do this for another 2 years after which time it will discon