Assume that the companys overall beta is 1.2102. The risk-free rate is 5%, and the required rate
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Assume that the company’s overall beta is 1.2102. The risk-free rate is 5%, and the required rate of return on the market is 11%. You are considering a low-risk project whose market beta is 0.5 less than the company’s overall beta. You finance only with equity, all of which comes from retained earnings. The project has a cost of $450 million, and it is expected to provide cash flows of $100 million per year at the end of years 1 through 5 and then $50 million per year at the end of years 6 through 10.
If the required rate of return for the company is 12.2612%, what is the project’s NPV (in millions of dollars)?
Related Book For
Foundations of Finance The Logic and Practice of Financial Management
ISBN: 978-0132994873
8th edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
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