Question

A project requires an initial investment of $500,000 depreciated straight-line to $0 in 12 years. The...

A project requires an initial investment of $500,000 depreciated straight-line to $0 in 12 years. The investment is expected to generate annual sales of $850,000 with annual costs of $700,000 for 12 years. Assume tax rate of 30% and the market risk premium of 6.0%, and the risk free rate of 10%. If the NPV of the project is $341,385.22 what is the beta of the project?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Annual cash flow = (850000 - 700000 - 41666.67) * (1 - 0.3) + 41666.67 = 117500
NPV = (117500 * Discount factor ) - 500000 = 341385.22
Discount factor = 7.16
Required rate of return against 12 years giving discount factor 7.16 = 9%
(please check with PVIFA table)
Required rate of return = rf + B * Mp = 10% + B * 6% = 9%
Beta = B = (-10% + 9%) / 6% = -0.01 / 0.06 = -0.16667
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A project requires an initial investment of $500,000 depreciated straight-line to $0 in 12 years. The...
A project requires an initial investment of $500,000 depreciated straight-line to $0 in 12 years. The investment is expected to generate annual sales of $850,000 with annual costs of $700,000 for 12 years. Assume tax rate of 30% and the market risk premium of 6.0%, and the risk free rate of 10%. If the NPV of the project is $341,385.22 what is the beta of the project?
A project requires an initial investment of $2,400,000 depreciated straight-line to $0 in 10 years. The...
A project requires an initial investment of $2,400,000 depreciated straight-line to $0 in 10 years. The investment is expected to generate annual sales of $700,000 with annual costs of $450,000 for 20 years. Assume a tax rate of 30% and a discount rate of 10%. What is the NPV of the project? Please solve using a financial calculator.
A project requires an initial investment of $950,000 depreciated straight-line to $0 in 10 years. The...
A project requires an initial investment of $950,000 depreciated straight-line to $0 in 10 years. The investment is expected to generate annual sales of $600,000 with annual costs of $250,000 for 10 years. Assume a tax rate of 30% and the NPV of $300,000. What is a discount rate of the project?
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.52 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $294584 at the end of the project. The project is estimated to generate $2146553 in annual sales, with costs of $809789. The project requires an initial investment in net working capital of $360133. If the tax rate is...
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $297260 at the end of the project. The project is estimated to generate $2043001 in annual sales, with costs of $843186. The project requires an initial investment in net working capital of $374861. If the tax rate is...
Quad Enterprises is considering a new three year expansion project that requires an initial fixed asset...
Quad Enterprises is considering a new three year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its three year tax life. The project is estimated to generate $1,790,000 in annual sales, with the costs of $700,000. The project requires an initial investment in net working capital of $410,000, and the fixed asset will have a market value of $420,000 at the end of the project. A.)...
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment...
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.7 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,080,000 in annual sales, with costs of $775,000. The tax rate is 35 percent and the required return on the project is 12 percent. What is the project’s NPV?
A business is considering a new 3-year expansion project that requires an initial fixed asset investment...
A business is considering a new 3-year expansion project that requires an initial fixed asset investment of $730,019. The fixed asset will be depreciated straight-line to 64,171 over its 3-year tax life, after which time it will have a market value of $92,583. The project requires an initial investment in net working capital of $75,117. The project is estimated to generate $202,956 in annual sales, with costs of $127,920. The tax rate is 0.22 and the required return on the...
A project cost $1 initial million investment and would depreciate straight line to 0 in 10...
A project cost $1 initial million investment and would depreciate straight line to 0 in 10 years. Besides depreciation, the variable cost is 60% of sales and fixed cost is $100,000 per year. Assume the income tax of 21%. Which BE in accounting is 500,000. If the discount rate is 8%, what is the NPV break even of sales?
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment...
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,810,000 in annual sales, with costs of $720,000. The tax rate is 25 percent and the required return on the project is 13 percent. What is the project’s NPV?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT