Question

(TCOs F, G) Discuss the problems associated with the use of a risk-adjusted discount rate in cash flow analysis

Answer #1

Assume that the risk-free rate is 5%, the risk-adjusted discount
rate is 10%, the expected cash flow for t = 1 is 495, and
the expected cash flow for t = 2 is 508.2
a)Assume that the cash flow risk increases geometrically through
time. Compute the present value of the cash flow stream using the
certainty equivalent method.
b) Assume that the cash flow risk remains constant through time.
Compute the present value of the cash flow stream using the...

(Risk-adjusted discount rates and risk classes)
The G. Wolfe Corporation is examining two capital-budgeting
projects with 5-year lives. The first, project A, is a
replacement project; the second, project B, is a project
unrelated to current operations. The G. Wolfe Corporation uses the
risk-adjusted discount rate method and groups projects according
to purpose, and then it uses a required rate of return or discount
rate that has been preassigned to that purpose or risk class. The
expected cash flows for...

what is risk adjusted discount rate? how is it used?

P12-12 (similar to) Risk-adjusted rates of return using
CAPM Centennial Catering, Inc., is considering two mutually
exclusive investments. The company wishes to use a CAPM-type
risk-adjusted discount rate (RADR) in its analysis. Centennial's
managers believe that the appropriate market rate of return is 12.1
% , and they observe that the current risk-free rate of return is
6.9 % . Cash flows associated with the two projects are shown in
the following table.
Project X Project Y
Initial investment (CF...

Risk-adjusted rates of return using CAPM Centennial
Catering, Inc., is considering two mutually exclusive investments.
The company wishes to use a CAPM-type risk-adjusted discount rate
(RADR) in its analysis. Centennial's managers believe that the
appropriate market rate of return is 12.1 %, and they observe that
the current risk-free rate of return is 6.5 %. Cash flows
associated with the two projects are shown in the following
table. (Click on the icon located on the top-right corner of the
data...

Discuss the 3 models in 250 words Dividend Discount Model,
Adjusted Dividend Model and the Free Cash Flow Model. Please do not
plagiarism. Please answer promptly.

A 5-year project has a risk-adjusted discount rate of 9% p.a.
The investment would be needed right away (i.e., in 2020), and
sales will occur from 2021 to 2025. You've already crunched the
numbers and found the cash flows (CF) associated with the project,
which are shown below. For simplicity, assume the given CF are in
dollars (i.e., not thousands nor millions of dollars). Year 2020
2021 2022 2023 2024 2025 CF -187 159 109 153 157 273 Find the...

1. Risk Premium Discuss why common stocks must earn a risk
premium.
2. Rate Anticipation Swaps (Bonds) Discuss rate anticipation
swaps as a bond portfolio management strategy.
3. Duration (Bonds) Discuss duration. Include in your discussion
what duration measures, how duration relates to maturity, what
variables affect duration, and how duration is used as a portfolio
management tool (include some of the problems associated with the
use of duration as a portfolio management tool).

Country Wallpapers is considering investing in one of three
mutually exclusive projects, E, F, and G. The firm's cost of
capital, r ,is 14.8 %, and the risk-free rate, Upper R Subscript
Upper F, is 9.7 %. The firm has gathered the following basic cash
flow and risk index data for each project
Project
E
F
G
Initial Investment (CF0)
15700
11000
19900
Year
Cash Flows
1
6300
5600
4200
2
6300
3800
5700
3
6300
4900
9000
4
6300...

In the ________________ method, expected cash flows are used in
the valuation process, and the risk adjustment is made to the
discount rate. Question 20 options: Certainty equivalent
Risk-adjusted discount rate (RADR) Sensitivity analysis Scenario
analysis

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