Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Using CAPM's formula,
Return on equity = Risk-free rate + Beta*(Expected market return - risk-free rate)
With the given information,
Return on equity = 1% + 0.55*(8% - 1%) = 4.85%
Hence UCD's expected return on the projected investment is 4.85%. With this and the given information, the NPV of the investment can be determined as follows.
Year
0
1
2
3
4
5
Net cash flow
-$5,000,000.00
$200,000.00
$900,000.00
$1,500,000.00
$1,700,000.00
$2,000,000.00
PVIF @ 4.85%
0.9537
0.9096
0.8676
0.8274
0.7891
PV of cash flows
$190,748.69
$818,663.90
$1,301,325.54
$1,406,614.80
$1,578,293.70
NPV
$295,646.63
The NPV of the expansion project has been determined to be $295,646.63. Since this is positive and above zero, UCDV should undertake the project, according to the NPV criteria. If UCDV's beta were 1.5 instead of 0.55, the expected return on the investment would be higher and the NPV of the investment will be below zero. Hence the project should not be undertaken by UCDV. This is illustrated below.
Return on equity = 1% + 1.5*(8% - 1%) = 11. 5%
PVIF @ 11.5%
0.8969
0.8044
0.7214
0.6470
0.5803
$179,372.20
$723,923.67
$1,082,098.16
$1,099,890.50
$1,160,528.10
-$754,187.38
Hence the expansion project should be rejected by UCDV if beta was 1.5.
The objective of this project is to demonstrate the effect of releasing accounting information concerning profits on the valuation (i.e. share price) of an Australian;listed compan
"Government departments should take audit report seriously by preparing annual financial statement on time".... Based on the above statement, suggest ways on how government depa
Consider an asset that cost 100000 to acquire and has an estimated salvage value of 20000. The assets is to be depreciated over four years. At the end of four years, the asset is s
Before nominations for a board position should the annual report be available
Q. Show Advantages of financial intermediation? The advantages of financial intermediation are as follows Investors are able to pool their funds in a bank deposit account to
Bankrupt person A bankrupt is a person against whom an adjudication order has been made by the court primarily on the grounds of his insolvency. Any person (other than a body c
Powers of trustee (A) Of his own initiative, he may: 1. Sell and transfer any part of the bankrupt's property; 2. Gives receipts for money received; 3. Take all n
Fair value adjustment IFRS 3 requires that goodwill on consolidation should be based on the fair values of the net assets of the subsidiary company on the date of acquisition. T
1. The acceptance of a capital budgeting project is usually evaluated on its own merits. That is, capital budgeting decisions are treated separately from capital structure decision
Arnot International's bonds have a present market price of $1,250. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd