Question

A project has a forecasted cash flow of $128 in year 1 and $139 in year 2. The interest rate is 7%, the estimated risk premium on the market is 12%, and the project has a beta of .68. If you use a constant risk-adjusted discount rate, what is:

**a.** The PV of the project? **(Do not round
intermediate calculations. Round your answer to 2 decimal
places.)**

Present value $

**b.** The certainty-equivalent cash flow in year 1
and year 2? **(Do not round intermediate calculations. Round
your answers to 2 decimal places.)**

Cash Flow | ||

Year 1 | $ | |

Year 2 | $ | |

**c.** The ratio of the certainty-equivalent cash
flows to the expected cash flows in years 1 and 2? **(Do not
round intermediate calculations. Round your answers to 2 decimal
places.)**

Ratio | ||

Year 1 | ||

Year 2 | ||

Answer #1

A project has a forecasted cash flow of $126 in year 1 and $137
in year 2. The interest rate is 5%, the estimated risk premium on
the market is 11.5%, and the project has a beta of 0.66. If you use
a constant risk-adjusted discount rate, answer the following:
a. What is the PV of the project? (Do not
round intermediate calculations. Round your answer to 2 decimal
places.)
b. What is the certainty-equivalent cash flow
in year 1...

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Year
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1
$1070
2
$1300
3
$1520
4
$2260
a.
If the discount rate is 8 percent, what is the future value of
these cash flows in Year 4? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g.,
32.16.)
b.
If the discount rate is 11 percent, what is the future value of
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Year
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1
$
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2
1,320
3
1,540
4
2,280
a.
If the discount rate is 7 percent, what is the future value of
these cash flows in Year 4?(Do not round intermediate
calculations and round your answer to 2 decimal places, e.g.,
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Year
Project A
Project B
0
−
120
−
120
1
50
69
2
70
69
3
90
69
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intermediate calculations. Round your answers to 2 decimal
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Year
Cash Flow
0
$
72,500
1
–51,500
2
–28,000
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intermediate calculations and enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Internal rate of return
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What is the NPV of this project if the required return is 6
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intermediate calculations and round your answer to 2 decimal
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Year Cash Flow
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1 7,300
2 8,600
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round intermediate calculations and round your answer to the
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Cash Flow (B)
0
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–$180,000
1
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15,000
2
22,000
45,000
3
20,000
50,000
4
15,000
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(a)
What is the payback period for each project?
(Do not round intermediate
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Project B
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