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Investment Project Value This competency assessment addresses assessing the value of investment projects. The Arbitrage Pricing Theory helps calculate required stock returns considering a number
Investment Project Value
This competency assessment addresses assessing the value of investment projects. The Arbitrage Pricing Theory helps calculate required stock returns considering a number of factors. In this Assignment, you will apply Arbitrage Pricing Theory to a business scenario.
Prepare this Assignment as a Word document. List each question followed by your answer.
- Complete problem: Cost of Equity-CAPM XYZ, Inc. has a beta of 0.8. The yield on a 3-month T-bill is 5%, and the yield on a 10-year T-bond is 7%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 20%. 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.
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- What is the projects NPV? (Hint: Begin by constructing a timeline).
- What is the projects IRR?
- What is the projects MIRR?
- What is the projects PI?
- What is the projects payback period?
- What is the projects discounted payback period?
- Your division is considering two investment projects, each of which requires an up-front expenditure of 20 million. You estimate that 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
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- What are the two projects net present values, assuming the cost of capital is 5%? 10%? 15%?
- What are the two projects IRRs at these same costs of capital?
Show your work.
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