Stock based on the capital asset pricing model

Assignment Help Financial Management

Reference no: EM131945439

True or False

Please provide the calculations and atleast 5 sentences explaning why the following statement is true or false.

1. A stock’s beta is estimated to be 1.3. The riskfree rate is 5 percent, and the market return is expected to be 9 percent. The expected return on the stock based on the Capital Asset Pricing Model (CAPM) is 10.20%?

2. A manufacturer wants to introduce new factory equipment that requires machinery to be purchased today for $120 million. This new machine will last for five years, and will be depreciated straight-line to a value of zero at the end of year five. The extra savings from the new machine are expected to produce project inflows of $47 million per year, beginning one year from today, for five consecutive years. The machine does carry extra costs such that project outflows will be $9 million per year, beginning one year from today, for five consecutive years. If the firm’s tax rate is 30% and the required rate of return is 11%, which of the following comes closest to the NPV of the new equipment project?

a. $1.84 million

b. ($3.96) million

c. ($1.12) million

d. $4.92 million

e. $8.13 million

Reference no: EM131945439

Questions Cloud

Explain three types of data and documentations : Describe and explain three (3) types of data and documentations needed for creating a supply strategy plan or for updating an existing supply strategic plan.

Positively distinguish serpents from other squamates : What features (describe at least five) positively distinguish serpents from other squamates? Should these two taxa be considered separated clades?

Explain important best practices for the reading : Which are the three most important BEST PRACTICES for this reading? Please explain why? and analyze, and discuss in great detail.

Tortoises in terms of feeding and reproduction : Explain how ambient,and consequently body temperature are important to turtles and tortoises in terms of feeding and reproduction?

Stock based on the capital asset pricing model : The expected return on the stock based on the Capital Asset Pricing Model (CAPM) is 10.20%?

How does a large budget deficit affect use of fiscal policy : In a minimum of 3-5 sentences answer the following questions. How does a large budget deficit affect the use of fiscal policy?

Deficiency of protein in the diet and blood plasma : How would glomerular filtration rate be affected by a severe deficiency of protein in the diet and blood plasma?

Define critical issues for the given article : Which are the three most CRITICAL ISSUES for this reading? Please explain why? and analyze, and discuss in great detail.

Explain the changes in cs ps and government revenue : Explain the changes in CS, PS and Government revenue if a tax was imposed on unhealthy foods and subsidy was given to healthy foods.

User Account

All Pages