Capm and valuation

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You are a consultant to a firm evaluating an expansion business. The cash-flow forecasts (in millions of dollars) for the project are:

Years Cash Flow
0 -100
1-10 + 15

Based on the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assuming that the rate of return available on risk-free investments is 4 percent and that the expected rate of return on the market portfolio is 12 percent, what is the net present value of the project?

What is the project IRR? What is the cost of capital for the project? Does the accept-reject decision using IRR agree with the decision using NPV?

 

Reference no: EM1361591

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