Generates the state dependent cash flows, Financial Accounting

Consider an economy with three states which occur with probability (0.2, 0.4, 0.4). Suppose a firm has a project which generates the state dependent cash flows (100, 200, 200) at t=1.

The investment costs are 170 at t=0. The firm owns this money. The market portfolio generates the payoff (200, 250, 300) and has an expected return of 8%. The risk free rate is 3%. Suppose the CAPM holds.

(a) What is the beta of this project?

(b) Explain whether the firm should conduct the project.

 

Posted Date: 3/29/2013 5:34:22 AM | Location : United States







Related Discussions:- Generates the state dependent cash flows, Assignment Help, Ask Question on Generates the state dependent cash flows, Get Answer, Expert's Help, Generates the state dependent cash flows Discussions

Write discussion on Generates the state dependent cash flows
Your posts are moderated
Related Questions
US GAAP follows the Historical Cost Concept in valuing the cost of Long-Term Assets. Explain this principle and how it compares to the standards used in the reporting of Long-Term

Investors need a 15% rate of return on Brooks Sisters' stock (rs = 15%). a.  What would the value of Brooks's stock be if the last dividend was D0 = $1.5 and if investors expect

Illustration: Computation of retained profits acquisition Normal 0 false false false EN-US X-NONE X-NONE MicrosoftIn

Focus Company issued a $30,000, 20 year bond with a stated interest rate of 7%. Assume interest payments are made annually. What is the selling price of the bond if the market ra

Define the term Relevance - accounting information Accounting information should have the ability to influence decisions. Except this characteristic is present, there is ac

ACCUMULATION ACCOUNTS FOR MINORS   (a) Income accumulations : When property is left in trust for minors, the income earned for the period will be divided equally or according t


assess the risk of material misstatement at assertion level

Minority interest (MI) When the holding company owns less than 100% of the ordinary share capital of the subsidiary company then the other balance is held by minority interest. T

Question: (a) The following output levels and production costs have been recorded over the last three periods: Required: Using the high-low method, estimate the: (i