- Complete problem: Cost of Equity-CAP
XYZ, Inc. has a beta of 0.8. The yield on a 3-month T-bill is 4%, and the yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 15%.
- What is the estimated cost of common equity using the CAPM? Show your work.
- Complete problems: NPV, IRR, MIRR, Profitability Index, Payback, Discounted Payback
A project has an initial cost of $60,000, expected net cash inflows of $10,000 per year for 8 years, and a cost of capital of 12%. Show your work.
- What is the project’s NPV? (Hint: Begin by constructing a timeline.)
- What is the project’s IRR?
- What is the project’s MIRR?
- What is the project’s PI?
- What is the project’s payback period?
- What is the project’s discounted payback period?
- Your division is considering two investment projects, each of which requires an up-front expenditure of 20 million. You estimate the investment will produce the following net cash flows:
Year Project A Project B
1 $5,000,000 $20,000,000
2 10,000,000 10,000,000
3 20,000,000 6,000,000
- What are the two projects’ net present values, assuming the cost of capital is 5%? 10%? 15%?
- What are the two projects’ IRRs at the same cost of capital? Show your work.
Prepare this assignment as a Word document. List each question, followed by your answer.
