The Third Question: Answer the following Cases (9 Marks)

1- Calculate the required rate of return for Ali Inc., assuming that :

1. Investors expect a 8% rate of inflation in the future.
2. The real risk free rate is 6%.
3. The market risk premium is 10%.
4. The firm has a beta of 2
5. Its realized rate of return has averaged 30% over the last 10 years.

2) Nader Construction Co. is considering a new inventory system that will cost $1500,000. The system is expected to generate positive cash flows over the next four years in the amounts of $750,000 in year one, $650,000 in year two, $300,000 in year three, and $360,000 in year four. Nader's required rate of return is 16%. What is the net present value of this project?

3) What is the payback period for a project with an initial investment of $90,000 that provides an annual cash inflow of $20,000 for the first three years and $12500 per year for years four and five, and $25000 per year for years six through eight?