Used in net present value calculation to compensate for risk

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1. A property developer is planning to build a new pay car park. The project will cost $20,500 and generate net cash inflows of $5,000 each year for five years. The IRR of this project is approximately

2.A firm is considering investment in a capital project with a project beta of 1.5. The expected return on the market portfolio is 15% and the risk-free rate is 6%. The firm's overall cost of capital is 18%. The discount rate that should be used in the net present value calculation to compensate for risk is

3. Miller Ltd is considering changing its capital structure from 100% equity to 80% equity (i.e. 20% debt relative to total assets) by repurchasing and cancelling shares. The number of shares outstanding are currently 10,000, but will drop to 8,000 after the repurchase. Miller will fund the repurchase by borrowing funds at an 8% interest rate. Total assets are $200,000, EBIT is $25,000, and the company tax rate is 30%. What is the effect on earnings per share associated with the EBIT of $25,000 for the new alternative capital structure?

Reference no: EM131333912

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Used in net present value calculation to compensate for risk : A property developer is planning to build a new pay car park. The project will cost $20,500 and generate net cash inflows of $5,000 each year for five years. The expected return on the market portfolio is 15% and the risk-free rate is 6%. The firm's ..

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