What effect does rising risk have on value of the asset

Assignment Help Finance Basics
Reference no: EM139391

Q. Drake wishes to evaluate value of the asset expected to give cash inflows of= $3000 each year at the end of years 1 through 4 also $15000 at the ending of year five. Her research points out that she should earn 10% on low risk assets, 15% on average risk assets, also 22% on high risk assets.

a) Find out what is the most Drake must pay for the asset if it is classified(1) low risk, (2) average risk, also (3) high risk

b) Suppose Drake is unable to assess risk of asset also wants got be certain she is making a good deal. On basis of your findings in parta, what is the most she must pay? Describe why?

c) All else being the same, what effect does rising risk have on value of the asset? Describe in light of your findings in part a.

Reference no: EM139391

Questions Cloud

Payout ratios also opportunity cost of capital : You may suppose any values for payout ratios also opportunity cost of capital. Compute stock price each share. Find out the value of PVGO.
Illustrate how book value each share : Illustrate how book value each share, earning each share also dividends each share change over years.
Trade with government of the oil producing nation : In trade with government of the oil producing nation. Callaghan Motors' bonds have ten years remaining to maturity.
Compute yearly interest income of every bond on basis : Compute yearly interest income of every bond on basis of its coupon rate also number of bonds which Sam could buy with his= $20000.
What effect does rising risk have on value of the asset : All else being the same, what effect does rising risk have on value of the asset. Describe in light of your findings in part a.
Discount rate for these computations : What do you believe is the suitable rate other than 8.00% to utilize as the discount rate for these computations.
Compute dirty price of this transaction : Compute accumulated interest due to seller from buyer at settlement. Compute dirty price of this transaction.
Value of the firm be if the company takes on debt : What will the value of the firm be if the company takes on debt equal to 100 each cent of its unlevered value?
Procedure of loan amortization also capital recovery : Illustrate procedure of loan amortization also capital recovery through suitable example.

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Compute current value of futures position

Compute current value of futures position based on the rate calculated above plus the 2 points.

  Given the information on the company

You are given the information on the company. Total market value is= $38 million. Company's capital structure, given here, is considered to be optimal.

  What do you predict net income and revenue to be next year

How would you measure the corporation's revenue performance over the last few years( for example, is it incresing, declining, stagent)? what are the reasons for your assessment? What factors will have the greatest influence on the evaluation o..

  Susie can earn the nominal annual rate of return

Susie can earn the nominal annual rate of return of= 12%, compounded semi-annually.

  Determine expected payment

Determine expected payment

  A life insurance policy with the taxable value

A life insurance policy with the taxable value of= $450 or a non-taxable increase in health insurance coverage valued at= $340.

  Prepare the pro forma cash flow statements

Prepare the pro forma cash flow statements for Bloomington Clinics

  Case study

Case Study: The following capital structure is taken from Bata Boots Co. balance sheet for the fiscal year ended April 30, 2005.  This is considered the firm’s optimal capital structure.

  Bonds nominal yield to maturity

What is the current yield on these bonds and  What is the bond's nominal yield to maturity.

  Interest equivalent factor

Interest equivalent factor,  Lori Stratton is considering investing in a bond that provides a yield of 8.35 percent or a preferred share with a yield of 7.09 percent. Lori lives in Ontario and at her level of taxable income, the federal tax rate is ..

  Lender - borrower relationship

The following questions are focused on a specific Lender / Borrower relationship

  Sovereign mines investment analysis

Sovereign Mines Investment Analysis

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd