What is the market risk premium

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Q1. ABC COMPANY purchased a new machine with a useful life of 7 years and no salvage value on January 1, 2012 for P400,000. The machine was depreciated using the straight line method and it was expected to produce annual cash flow from operations, net of income taxes, of P90,000. The present value of an ordinary annuity of PI at 7 periods at 12% is 4.564. The present value of PI at 7 periods for 12% is .452. Assuming that ABC used a time adjusted rate of return of 12%. What was the net present value?

Q2. ABC Company invested P100,000 in a two-year project. The cash flow was P40,000 for the first year. Assuming that the internal rate of return was exactly 12%, what was the cash flow for the second year of the project?

Q3. A stock has an expected return of 12.25 percent. The beta of the stock is 1.15 and the risk-free rate is 5 percent. What is the market risk premium?

Reference no: EM133085487

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