Should the investment be accepted

Assignment Help Financial Management

Reference no: EM132062531

The XYZ Company has net income of $50,000,000 per year on stock equity of $500,000,000. The firm has a chance to invest $80,000,000 in an investment that has an expected internal rate of return of 0.50.

If the project is successful it will earn$40,000,000 per year for perpetuity. The probability of being successful is 0.20. If the investment is not successful it will earn zero cash flows.

There is a 0.8 probability that it will not be successful. A loss of $80,000,000 would be awkward but the firm could probably survive. Should the investment be accepted?

Reference no: EM132062531

Questions Cloud

What is the empirical formula of menthol : What is the empirical formula of menthol? Add subscripts to complete the empirical formula.

What are the arithmetic and geometric average time-weighted : An investor buys three shares of XYZ at the beginning of 2013, buys another two shares at the beginning of 2014, sells one share at the beginning of 2015.

What is the percent yield of the reaction : If the actual yield of Li3N is 6.01 g, what is the percent yield of the reaction?

Estimate the required return on these two stocks : Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required return on these two stocks.

Should the investment be accepted : A loss of $80,000,000 would be awkward but the firm could probably survive. Should the investment be accepted?

What is the expected net income for abc this year : Given its tax rate of 40%, what is the expected net income for ABC this year?(If it is a negative, be sure and enter a negative sign)

Prepare a chart of cash flows for the four dates : Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2010, to January 1, 2013.

Find the value of the stock price today : The firm has $24 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 18 million shares outstanding.

Calculate the pressure of the ammonia inside the flask : A 1.2 L flask contains 0.500 mole of ammonia (NH3) at 150°C. Calculate the pressure of the ammonia inside the flask.

User Account

All Pages