What effect does increasing risk have on value of asset

Assignment Help Financial Management

Reference no: EM131523306

Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $2,800 per year at the end of years 1 through 4 and $15,565 at the end of year 5. Her research indicates that she must earn 11?% on? low-risk assets, 16?% on? average-risk assets, and 22?% on? high-risk assets.

a. Determine what is the most Laura should pay for the asset if it is classified as? (1) low-risk,? (2) average-risk, and? (3) high-risk.

b. Suppose Laura is unable to assess the risk of the asset and wants to be certain? she's making a good deal. On the basis of your findings in part a ?what is the most she should? pay? Why?

c. All else being the? same, what effect does increasing risk have on the value of an? asset? Explain in light of your findings in part a.

Reference no: EM131523306

Questions Cloud

Internal rate of return? method and their? requirements : Using the internal rate of return? (IRR) method and their? requirements, determine whether Billy and Mandy should undertake the investment.

Undertake to generate an acceptable return on her porfolio : Katherine Wilson is wondering how much risk she must undertake to generate an acceptable return on her porfolio.

Create conflict of interest for a university : Does the existence of an affinity credit card create a conflict of interest for a university

What is the present value of payment : What is the present value of a $1,550 payment made in seven years when the discount rate is 9 percent?

What effect does increasing risk have on value of asset : All else being the? same, what effect does increasing risk have on the value of an? asset?

What are differences in partnerships and corporations : What are the differences between partnerships, and corporations in for profit or not for profit in healthcare organizations?

What is the current share price for the stock : What is the current share price for the stock?

Production-consumption of china and france without trade : What is the production and consumption of China and France without trade?

What will be your rate of return on the investment : An investment offers to pay you $10,000 a year for five years. If it costs $33,520, what will be your rate of return on the investment?

User Account

All Pages