Question

You received no credit for this question in the previous attempt. You are a consultant to a large manufacturing corporation considering a project with the following net after-tax cash flows (in millions of dollars): Years from Now After-Tax CF 1-9 10 The project's beta Is 1.9. Assuming rf - 5% and E(TM) - 15% a. What is the net present value of the project? (Do not round Intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Net present value million b. What is the highest possible beta estimate for the project before its NPV becomes negative? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Highest possible beta value

Answer 1

a)

Large Manufacturing Co Cash flows Risk free rate Beta Erm) 5% 1.9 15% 33.50% 3.12 Cost of equity NPV of cash flows

b)

в 15 15 151 X 1497 Large Manufacturing Co 1498 Cash flows 1499 Risk free rate 5% 1500 Beta terrerers 1.91 1501 E(rm) 1502 Cost of equity 33.50% 1503 NPV of cash flows $ 3.12 1504 15% Goal Seek ? Set cell: $B$1503 To value: By changing cell: $B$1500|| 1505 OK Cancel 1506

Large Manufacturing Co Cash flows Risk free rate Beta E(rm) Cost of equity NPV of cash flows 5% 2.096 15% 36.43% 0.00

Beta = 2.10

Formulae

1497 Large Manufacturing Co 1498 Cash flows 1499 Risk free rate 1500 Beta 1501 E(rm) 1502 Cost of equity 1503 NPV of cash flows 0.05 2.09554795807891 0.15 =B1499+(B1500*B1501) =NPV(B1502,D1498:M1498)+C1498