Diane plc is considering three projects in a range of different industries. Each project is expected to
Question:
Diane plc is considering three projects in a range of different industries. Each project is expected to last for one year.
Project A
Project A is a single investment. It has a net cash flow of £3m and a β of 1.
Project B
Project B is comprised of 2 investments, details as follows;
Investment Net cash flow β £m 1 1 1. 2 2 0.
Project C
Project C is comprised of 3 investments, details as follows;
Investment Net cash flow β £m 1 1 1. 2 0 1. 3 1 0.
Currently, the risk-free rate of return is 3% and the market rateof return is 8%.
Required
Calculate the present value of each of the projects being considered by Diane plc. (15 Marks)
Calculate the weighted β for project B and project C (6 Marks)
Based on your calculations in (1) and (2) above, advise the management of Diane plc which project they should select.
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella