Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Using CAPM's formula,
Return on equity = Risk-free rate + Beta*(Expected market return - risk-free rate)
With the given information,
Return on equity = 1% + 0.55*(8% - 1%) = 4.85%
Hence UCD's expected return on the projected investment is 4.85%. With this and the given information, the NPV of the investment can be determined as follows.
Year
0
1
2
3
4
5
Net cash flow
-$5,000,000.00
$200,000.00
$900,000.00
$1,500,000.00
$1,700,000.00
$2,000,000.00
PVIF @ 4.85%
0.9537
0.9096
0.8676
0.8274
0.7891
PV of cash flows
$190,748.69
$818,663.90
$1,301,325.54
$1,406,614.80
$1,578,293.70
NPV
$295,646.63
The NPV of the expansion project has been determined to be $295,646.63. Since this is positive and above zero, UCDV should undertake the project, according to the NPV criteria. If UCDV's beta were 1.5 instead of 0.55, the expected return on the investment would be higher and the NPV of the investment will be below zero. Hence the project should not be undertaken by UCDV. This is illustrated below.
Return on equity = 1% + 1.5*(8% - 1%) = 11. 5%
PVIF @ 11.5%
0.8969
0.8044
0.7214
0.6470
0.5803
$179,372.20
$723,923.67
$1,082,098.16
$1,099,890.50
$1,160,528.10
-$754,187.38
Hence the expansion project should be rejected by UCDV if beta was 1.5.
Assume you are receiving an amount of Rs.5000 twice in a year for subsequent five years one time at the starting of the year and another amount of Rs. 5000 at the ending of the yea
We consider two identical firms that produce the same good. The demand for that good is the function D(p) = 1 - p where p is the unit price. Firms incur no cost. The competition
1) Which inventory methods are used by Lowe's? (Mark all that apply.) a. Weighted-average b. FIFO c. LIFO d. Dollar-value LIFO e. Retail LIFO f. Retail Dollar-value LIFO g. If mult
Nature of a Deeds of Arrangement To avoid the expense and delay involved in a bankruptcy, a debtor in trouble may make a private arrangement with the creditors to accept paymen
IF I HAVE A LOAN AND ACCRUED INTEREST .THEN ACCRUED INTEREST GOES ON WHICH SIDE- DEBIT OR CREDIT ?
Explain the term Reporting interval - Management accounting For most businesses, financial accounting reports are produced on an annual basis, though some large businesses prod
Mark up Mark up is defined as the rate of gross profit to cost of sales: Mark up = Gross Profit Cost of sales Margin is defined as the rate of gros
The discount rate used must normally reflect the weighted average cost of equity and debt taking into account the systematic risk of the investment. A company's weighted average co
1. From your review of note 3.7, how does the company determine whether a sale has occurred? 2. Using the consolidated income statement and consolidated statement of financial p
Q. What are Junk Bonds? Junk Bonds - DEBT SECURITIES issued by companies with higher than normal credit risk. Considered ‘non-investment grade' bonds, these SECURITIES ordinari
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!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd