5. Beta coefficients and the capital asset pricing model Personal Finance Problem Katherine Wilson is wondering how much risk she must undertake to generate an acceptable return on her porfolio. The risk-free return currently is 2%. The return on the overall stock market is 15%. Use the CAPM to calculate how high the beta coefficient of Katherine's portfolio would have to be to achieve a portfolio return of 13%. The beta of the portfolio is (Round to four decimal places.) 6. Problems with the IRR method Acme Oscillators is considering an investment project that has the following rather unusual cash flow pattern: 6. a. Calculate the project's NPV at each of the following discount rates: 0%,5%,10%,20%,30%,40%,50%. b. What do the calculations tell you about this project's IRR? The IRR rule tells managers to invest if a project's IRR is greater than the cost of capital. If Acme Oscillators' cost of capital is 8%, should the company accept or reject this investment? c. Notice that this project's greatest NPVs come at very high discount rates. Can you provide an intuitive explanation for that pattern? d. If Acme Oscillators' cost of capital is 8%, should the company accept or reject this investment based on MIRR? a. Calculate the NPV at the following discount rates for this investment: 0%,5%,10%,20%,30%,40%,50%. The NPV at 0% is $ The NPV at 5% is $ The NPV at 10% is $ The NPV at 20% is \$ The NPV at 30% is \$ The NPV at 40% is $ The NPV at 50% is \$ (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) b. What do the calculations tell you about this project's IRR? (Select the best answer below.) A. The calculations tell you this project has no IRR. B. The calculations tell you this project has more than one IRR. C. The calculations tell you that this project's IRR is negative. D. The calculations tell you this project's IRR is greater than 50%. The IRR rule tells managers to invest if a project's IRR is greater than the cost of capital. If Acme Oscillators' cost of capital is 8%, hould the company accept or reject this investment? (Select the best answer below.) A. The IRR rule says that the firm should accept the investment if the IRR exceeds the cost of capital. However, in cases with multiple IRRs, one IRR may be greater than the cost of capital, while another is lower. In such a situation, it is not clear whether to accept or reject the project. B. The IRR rule says that the firm should accept the investment if the IRR exceeds the NPV. However, in cases with multiple IRRs, one IRR may be greater than the cost of capital, while another is lower. In such a situation, the project should be accepted if the NPV is greater than 0 . C. The IRR rule says that the firm should accept the investment if the IRR exceeds the cost of capital. However, in cases with multiple IRRs, one IRR may be greater than the cost of capital, while another is lower. In such a situation, the project should always be accepted. D. The IRR rule says that the firm should accept the investment if the IRR is less than the cost of capital. However, in cases with multiple IRRs, one IRR may be greater than the cost of capital, while another is lower. In such a situation, it is not clear whether to accept or reject the project. Notice that this project's greatest NPVs come at very high discount rates. Can you provide an intuitive explanation for hat pattern? (Select the best answer below.) A. The largest cash outflow ( $601,800,000 ) occurs in year 3 . Other things equal, a change in the discount rate will have a larger impact on present value when the outflow or inflow occurs further into the future. B. With a 50% discount rate, for example, the present value of the $601,800,000 outflow is only $178,311,111 ( 29.6% of the undiscounted outflow). In contrast, with a 5% discount rate, present value is $519,857,467 ( 86.4% of the undiscounted outflow). C. There is no intuitive explanation when there are multiple IRRs. D. A and B provide an intuitive explanation. d. If Acme Oscillators' cost of capital is 8%, the MIRR of the investment is \%. (Round to four decimal places.) The company should (1) the investment because its MIRR is (2) than the cost of capital. (Select from the drop-down menus.) 6: Data Table (Click on the following icon in order to copy its contents into a spreadsheet.) (1) accept (2) less reject greater