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You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are
You are a consultant to a firm evaluating an expansion of its current business. The cash-flow forecasts (in millions of dollars) for the project are as follows. Year 0: initial outlay of 100, Years 1 to 10: 15 each year. On the basis of the behavior of the firms stock, you believe that the beta of the firm is 1.5. Assuming that the rate of return available on risk-free investment is 4% and that the expected rate of return on the market portfolio is 12%, what is the (risk-adjusted) net present value of the project?
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