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FNCE3000 Corporate Finance
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FNCE3000 Corporate Finance
0 Download2 Pages / 254 Words
Course Code: FNCE3000
University: Curtin University
MyAssignmentHelp.com is not sponsored or endorsed by this college or university
Country: Australia
Question:
lf the market risk premium is 8 percent, then according to the CApM, the risk premium of a stock with beta value of 1.7 m.
Answer:
Beta
Interest rate risk
greater than 12 percent
Risk premium of stock = beta * market risk premium
= 1.7*8% = 13.60%
$10
Operating cash flow = Revenue – variable costs – depreciation
=43-30-3 = $10It looks at different but consistent combinations of variables.it can help identify the project’s most important variables.
higher than the one calculated using accounting profit.
the present value of inflows line cuts the present value of outflows line.
Step l: Modeling the project, Step 2: Specifying probabilities, Step 3: Simulating cash flows. and Step 4: Calculating present value.
NPV
timing options.
The net present value method
Discounted payback period, net present value (NPV),and internal rate of retum only
10 percent
=0.5*16%+0.5*4% = 10%
below the security market line.
under-priced.
Rate of return of stock = Beta(Rf-Rm) =0.9*(14%-4%) = 9%
Rate of return on stock is 9% and expected rate of return is 13%, hence the stock is underpriced
15.0 percent
=8*1.25%+5% = 15%
$401 .90
Required rate of return = 4%+1.2*(14%-4%) = 16%
Certainty equivalent cash flow = (500*1.04^2)/(1.16^2) = $ 401.90
IRR is conceptually easy to communicate.
Machine B, because EAC for machine B is $79.42
Particulars
Machine A
Machine B
Intial Costs
50
90
Life (years)
2
3
Annual Maintenance
70
40
Discount rate
15%
15%
PV of annual maintenance
($113.80)
($91.33)
Total cost
$163.80
$181.33
Equivalent Annual Cost
($100.76)
($79.42)
Unique risk.
– 1.0
0.9
Cov(Rs,Rm) = (0.6*20*30) = 360
Var(Rm) = 20^2 = 400
Beta = [Cov(Rs,Rm)/var(Rm)] = 360/400 = 0.90
prefer B to A
capital market line
When capital rationing exists
short-term assets and short-term liabilities.
The expected risk premium on an investment is proportional to its beta
the cost of capital
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My Assignment Help. (2021). Corporate Finance. Retrieved from https://myassignmenthelp.com/free-samples/fnce3000-corporate-finance/accounting-profit.html.
“Corporate Finance.” My Assignment Help, 2021, https://myassignmenthelp.com/free-samples/fnce3000-corporate-finance/accounting-profit.html.
My Assignment Help (2021) Corporate Finance [Online]. Available from: https://myassignmenthelp.com/free-samples/fnce3000-corporate-finance/accounting-profit.html[Accessed 18 December 2021].
My Assignment Help. ‘Corporate Finance’ (My Assignment Help, 2021)
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