Considering an investment project with risk

Assignment Help Financial Management

Reference no: EM131189821

The Chris-Kraft Co. is financed entirely with equity and the firm has a beta of 1.55. The current risk-free rate is 6 percent and the expected market return is 12 percent. Chris-Kraft is considering an investment project with a risk that matches the firm's average risk, requires a net investment of $60,000, and has net cash flows of $16,000 per year for 7 years.

(A) What should be the required rate of return on the project?

(B) What is the NPV of the project?

Reference no: EM131189821

Questions Cloud

What are the primary purposes of the bankruptcy code : What are the primary purposes of the Bankruptcy Code? Describe the creditor actions that are automatically held in abeyance when the debtor files a bankruptcy petition. When is a debtor allowed to void liens on his properties? What type of liens can ..

Total payoff curves : Show the total payoff curves (profit/loss on the y-axis and stock price at expiry on the x-axis) for the following:

Find general expression for market variance-beta : A market has one risk free (F) and two risk assets (A and B) only. The risky assets are in equal supply, that is M=0.5 A + 0.5 B. We also know that risk free rate = 0.10, Variance A = 0.04, Covariance (AB) = 0.01, Variance B = 0.02 & Market Rate, Rm ..

What is your portfolios expected return : A risky asset has an expected return of 12% and standard deviation of 18%. The risk-free rate is 6%. If you invest 40% of your funds in the risk-free asset and 60% of your funds in the risky asset, What is your portfolios expected return? What is you..

Considering an investment project with risk : The Chris-Kraft Co. is financed entirely with equity and the firm has a beta of 1.55. The current risk-free rate is 6 percent and the expected market return is 12 percent. What should be the required rate of return on the project? What is the NPV of ..

Find the coefficient of variation for the project : An investment costs $7,000, after tax considerations, and will generate cash flows of $1,500 a year over its life. The capital investment will last for 7, 8, or 9 years, with probabilities of 0.3, 0.4, and 0.3 respectively. Assume the required rate o..

Transactions outside the operating budget : Metropolis Health System (MHS) has received a wellness grant from the charitable arm of an area electronics company. The grant will run for 24 months, beginning at the first of the next fiscal year. Two therapists and two registered nurses will each ..

Construct a fish-bone chart using word : Write a two to three (2-3) page paper in which you: 1. Construct a fish-bone chart using Word or MS Paint. 2. Construct a run and / or control chart using Excel. 3. Recommend to the ambulatory health service on how it can improve the services it offe..

What is the critical value : Historically, the proportion of students entering a university who finished in 4 years or less was 62%. To test whether this proportion has decreased, 112 students were examined and 50% had finished in 4 years or less. To determine whether the propor..

User Account

All Pages