Suppose the current value of a dealership is $5.00 million and the first-year free cash flow is expected to be $500,000. What is the beta of a corporation whose only asset is a one-year option to open a dealership? What is the beta if the first year's cash flows are expected to be $700,000, so a working dealership is worth $7.00 million Assume that the beta of the dealership is 2.0 and that the appropriate cost of capital for this investment is 12.0%. Also consider that the volatility and the risk-free rate are 40% and 5.0%, respectively. What is the beta of a corporation whose only asset is a one-year option to open a dealership? The current value of the asset without the dividends is million. (Round to four decimal places.) View an example Etext pages Get more help Clear all Check answer Your R&D division has just synthesized a material that will superconduct electricity at room temperature: you have given the go ahead to try to produce this material commercially. It will take five years to find out whether the material is commercially viable, and you estimate that the probability of success is 23%. Development will cost $10.1 million per year, pald at the beginning of each year. If development is successful and you decide to produce the material, the factory will be built immediately. It will cost $1,020 million to put in place and will generate profits of $100 million at the end of every year in perpetuity. Assume that the current five-year risk-free interest rate is 9.6% per year, and the yield on a perpetual risk-free bond will be either 12.2%, 9.7%, 8.5%, or 5.1% in five years. Assume that the risk-neutral probability of each possible rate is the same. What is the value today of this project? What is the value of the development opportunity today? The value is $ million (Round to one decimal place.) Help me solve this View an example Get more help Clear all Check answer Suppose the current value of a dealership is $5.00 million and the first-year free cash flow is expected to be $500,000. What is the beta of a corporation whose only asset is a one-year option to open a dealership? What is the beta if the first year's cash flows are expected to be $700,000, so a working dealership is worth $7.00 million Assume that the beta of the dealership is 2.0 and that the appropriate cost of capital for this investment is 12.0%. Also consider that the volatility and the risk-free rate are 40% and 5.0%, respectively. What is the beta of a corporation whose only asset is a one-year option to open a dealership? The current value of the asset without the dividends is million. (Round to four decimal places.) View an example Etext pages Get more help Clear all Check answer Your R&D division has just synthesized a material that will superconduct electricity at room temperature: you have given the go ahead to try to produce this material commercially. It will take five years to find out whether the material is commercially viable, and you estimate that the probability of success is 23%. Development will cost $10.1 million per year, pald at the beginning of each year. If development is successful and you decide to produce the material, the factory will be built immediately. It will cost $1,020 million to put in place and will generate profits of $100 million at the end of every year in perpetuity. Assume that the current five-year risk-free interest rate is 9.6% per year, and the yield on a perpetual risk-free bond will be either 12.2%, 9.7%, 8.5%, or 5.1% in five years. Assume that the risk-neutral probability of each possible rate is the same. What is the value today of this project? What is the value of the development opportunity today? The value is $ million (Round to one decimal place.) Help me solve this View an example Get more help Clear all Check
