Question
6. Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecasts for the project are as follows: Years Cash Flow ($ millions) 0
6. Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecasts for the project are as follows:
Years Cash Flow ($ millions)
0 40
1-5 +20
The firm currently has a beta of 1.2. The 10-year US Treasury Note currently pays 2.5 percent annually and the market risk premium has averaged 6.5 percent in the United States. Use the Capital Asset Pricing model to estimate the firms opportunity cost of capital and find the NPV of the above expansion project. Should the firm proceed with the expansion?
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Financial Markets and Institutions
Authors: Anthony Saunders, Marcia Cornett
6th edition
9780077641849, 77861663, 77641841, 978-0077861667
