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.
1. Think about the transactions listed below. a. A company obtains a $10,000 loan from a bank. b. A company purchases $15,000 of inventory from its suppliers. They paid $5,000 toda
Activity Cost Drivers An element of measurement for the stage (or quantity) of an activity that is performed within a business company. Hence, a movement cost driver represen
Questikon: For Period Wilson Ltd has produced the following budget figures for Product X: For the period, the budgeted fixed overhead is Rs100,000 and the budgeted sales ar
You are evaluating a project which costs $720,000, has a four-year life, and no salvage value. Depreciation is straight-line and the half year rule does not apply. Sales are projec
Q. If a corporation declares a 10% stock dividend on its common stock, the account to be debited on the date of declaration is a. Common Stock Dividends Distributable. b. Common St
History of trust The following general information should be kept with the trust documents: Summary of will or trust deed; Short history of the trust; Trustees’ nam
Allied Managed Care Company is evaluating two different computer systems for handling provider claims. There are no incremental revenues attached to the projects, so the decision
provide for depreciation at 10%p.a at cost for equipment and 15% at book value for vehicles
Before nominations for a board position should the annual report be available
how should i treat items in the additional information
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: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd