the example under the question. it show step by step how to do it.

Window Hole De Seat Homework #6: Capital Budgeting and CAPM 1. You are comparing the merits of two pieces of equipment with different life expectancies, as below (A) (20 points) What are the net present values of A and B if they are run just once?r=4%. (B) (20)What are the net present values of A and B if they are run forever (ie, replaced every 4 and 5 years respectively)? (C) (20) Which equipment would you prefer? Why? Years Year o $40 $46 Year 1 $10 511 Year 2 $12 $12 Years $14 515 Yeard 516 310 $12 Discount rate at 4x Equipment A (4-Yr Life) Equipment (5-Yr life) NPV of A52 Equivalent Annual Cashtlow NPV of 0-57 Equivalent Annual Cashow SA SA SA $ SA $8 SH sa Macbook All . S8 13 DO S 3 # 3 % 5 8 7 4 6 8 9 0 delete E R 0 Expected Rate of Return E(P) 2. (40 points) You estimated the B's on 4 stock market sectors as follows: Sector A (-1.0) Sector B (B= 2.0) Sector C (B - 0.5) Sector D (1.0) Market Portfolio Please match the 4 sectors with the dots on the chart. RE + P Std Dev 2 MacBook Air 23 THE 30 0 23 S! $ 4 1 0 5 6 7 8 9 delete E V R E Y O U P I S DIF KL retur Sat Mar 13 View Share Exercises on CAPM Expected Rate of Return (P) 5&P SOO(B-1) Based on the regression analysis and the estimated B on various market sectors, please match them to the circles in the chart. Financial sector stocles (4-1.1346) High-yield corp bonds (80.3891) Investment-grade corp bonds 0.2168) Gold(0.063) RE (P) Std Dev 28 ZB Ge DO D BO TY D Sat Mar View Shoes Arrange Exercise on CAPM You run a statistical regression of historical rates of return of an investment (X) on those of the market portfolio (M), with the following results RX = -0.4% + 1.20 XR + (A) What is the estimated B of investment X7 (B) What does the -0.4% represent? (C) If the expected rate of return for the market portfolio is 8%, what is the expected rate of return of X2 Answer (A) The estimated of investment is the slope in the regression = 1.20 (B) - R + B.-R) +- R-1). R+ B + 1 - 1 - 1.20 -0.4% -296 ( CR) - -0.4+1.20 R-0.4% +120 x899.2% MacBook 20 1.3 So 113 10 TB A 1 . % 5 8 7 9 CO 6 4 delete E 0 R Y