1. A project has an investment cost of CF50m and is expected to produce risky cash flows perpetually and which will, on average, be CF15m per annum but fluctuate with a volatility of 30% per annum. The stock market is expected to have a return of 15% per annum and is likely to experience volatility of 20% per annum. The correlation between the projects cash flows and the markets returns is 0.5. The central banks treasury bond yield is 300 basis points.

Evaluate the NPV of the project.

(25 marks)

2. Compare and contrast valuation models based on discounted cash flows and valuation approaches based on the relevant multiples of comparable investments.

(10 marks)