The value of proposed investments projects
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.
What is the project’s NPV?
What is the project’s IRR?
What is the project’s MIRR?
What is the project’s PI?
What is the project’s payback period?
What is the project’s 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
What are the two project’s 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.
Prepare this Assignment responding to the problems as an Excel® or Microsoft® Word®, showing all necessary formulas and steps. List each question, followed by your answer.
The Module 3 Competency Assessment has 3 parts:
Part 1 Analyze the discounted cash flow approach
Calculate cost of equity using CAPM
Part 2 Apply the NPV equations of an investment to project its NPV
Calculate a project’s NPV
Calculate a project’s discounted payback period
Calculate a project’s IRR
Part 3 Estimate an investments Net Present Values
Demonstrate a project’s NPV assuming cost of capital at different percentages
Minimum Submission Requirements
This Assessment should be a Microsoft Word (minimum 350 words) document, in addition to the title and reference pages.
