Stock returns have covariance with the market portfolio

Assignment Help Financial Management

Reference no: EM132047193

Neon Corporation’s stock returns have a covariance with the market portfolio of .0345. The standard deviation of the returns on the market portfolio is 25 percent, and the expected market risk premium is 8.8 percent. The company has bonds outstanding with a total market value of $55.13 million and a yield to maturity of 7.8 percent. The company also has 4.63 million shares of common stock outstanding, each selling for $23. The company’s CEO considers the current debt–equity ratio optimal. The corporate tax rate is 34 percent, and Treasury bills currently yield 4.7 percent. The company is considering the purchase of additional equipment that would cost $42.13 million. The expected unlevered cash flows from the equipment are $11.93 million per year for five years. Purchasing the equipment will not change the risk level of the company.

Calculate the NPV of the project. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $

Reference no: EM132047193

Questions Cloud

Initial cost of plant-company raises all equity externally : What is the initial cost of the plant if the company raises all equity externally?

What is the appropriate discount rate for new project : The firm’s tax rate is 40%. What is the appropriate discount rate for the new project?

Net present value of loan excluding flotation costs : Calculate the net present value of the loan excluding flotation costs.

What is the true initial cost figure the company : What is the true initial cost figure the company should use when evaluating its project?

Stock returns have covariance with the market portfolio : Neon Corporation’s stock returns have a covariance with the market portfolio of .0345. Calculate the NPV of the project.

Endeavor to pursue strategies to be socially responsible : Explain why a company would endeavor to pursue strategies to be socially responsible in its actions

What is your best estimate of aftertax cost of debt : What is the company's total book value of debt? What is your best estimate of the aftertax cost of debt?

Project available that requires initial investment : Dorman Industries has a new project available that requires an initial investment of $4.7 million. What is the NPV of this project?

What is the npv of decision to purchase new machine : What is the NPV of the decision to purchase a new machine? What is the IRR of the decision to purchase a new machine?

User Account

All Pages