Reference no: EM132067030

1. You purchased land 3 years ago for $75,000 and believe its market value is now $120,000. You are considering building a hotel on this land instead of selling it. To build the hotel, it will initially cost you $205,000, an expense that you plan to depreciate straight line over the next three years. Wells Fargo offered you a loan for $60,000 at an 8% interest rate to be repaid over the next 4 years. You anticipate that the hotel will earn revenues of $334,000 each year, while expenses will be a mere $75,000 each year. The initial working capital requirement will be $14,000 which will be recovered in the last year. The tax rate is 28%. Your estimated cost of capital is 15%. What is the net present value of this project?

A) $192,149.88

B) $831,000.00

C) $80,929.67

D) $139,666.75

E) $186,089.94

2. Calculate the risk premium on stock C given the following information: risk-free rate = 5%, market return = 13%, stock C’s beta = 1.3.

8.0%

10.4%

15.4%

16.9%

3. A stock has a beta of 1.4 and an expected return of 13.53%. What is the risk-free rate if the market rate of return is 10.6%?

2.825%

3.250%

3.275%

3.415%

4. An investor expects a return of 18% on his portfolio with a beta of 1.25. If the expected market risk premium increases from 8% to 10%, what return should he now expect on the portfolio?

20.0%

20.5%

22.5%

26.0%