Question

1). A firm determines that acceptance of the project under consideration will increase its beta from 1.2 to 1.5. However, the change in the firm's beta not have an effect on the projected cash flows. What effect would the change in the project's beta have on the following measures, NPV & IRR, of investment quality?

Answer 1

Befa is a measure of stock's volatility in relation to the market its The market has a beta of 1.0, and Individual stock are Ranked according to how much they beviate from the market. Befer is a key component for the capital assete pricing model (Capm), which is used to calculate the cost of equity. Recall that the cost of Copital represent the Discount Rate used to arrive at the present value of companye future cash flows. High Company beta is the higher its cost of the capital Doum Docount Rate the higher the discount Rate, the lower the present value on Company Future Cash Flows In thy sitution beta from 1.a to 15 Change that means Increes in Risk. In Coll OF Incros beta that time high cost of capital that mens high biscount pate High Discount pate that low cash flow that 012 APV and IRR both are erreeft - MeV and IRR If fake more than pocent retain the bon effect bear of High Risk and time to Completed and it requires more colh plow that time only organisatton present sitution