2) IF a person required return decreases for an increase in risk that person is said to be…
Is equal to the annual net cash flows divided by one half of the project’s cost when the cash flows are an annuity…
A project has initial costs of $3,000 and subsequent cash inflows in years 1 ? 4 of $1350, 275, 875, and 1525. The company's cost of capital is 10%. Calculate NPV for this project.…
The going interest rate per year = 10%, the number of years, N = 20, future value, FV = 1,000, and present value, PV = 865.…
The following table displays the NPV computation with a 10% weighted average cost of capital for this project.…
XYZ is considering a project that will require $28,000 in net working capital and $87,000 in fixed assets. The project is expected to produce annual sales of $75,000 with associated costs of $57,000. The project has a 5-year life. The company uses straight-line depreciation to a zero book value over the life of the project. The tax rate is 30 percent. What is the operating cash flow for this project?…
This is the investor's combination of securities that achieves the highest expected return for a given risk level. Optimal portfolio…
An investor can allocate money between a risk-free security that has zero risk (β=0), and the market portfolio that has market risk (β=1). If 75% of the portfolio is invested in the market, then the portfolio will have a β=0.75. If only 25% is invested in the market, then the portfolio will have a market risk of β=0.25. The first example (β=0.75) might be taken by a less risk averse investor while the second example (β=0.25) illustrates the portfolio of a more risk averse investor. By allocating the investment money between 0 and 100% into the market portfolio, an investor can achieve any level of market risk desired.…
The relationship between risk and rate of return is risk determines expected rates of return on every existing asset investment. The Risk-Return relationship is characterized as being a "positive" or "direct" relationship. (Importance of risk relationship , 2001). In other worlds if the risk of investing on an investment is high then the return will also be high.. Alternatively, if an investment has relatively lower levels of expected risk then the investor will get relatively lower returns. The risk and rate of return relationship effects both business managers and individual investors. The higher the chance of risk the more likely it must be compensated with higher return.…
The present value of the perpetual stream of cash flows. This is given by PVPerpetuity = CF / i = $215 / 0.08 = $2,688.…
The rate of return you would earn on an alternative investment of small risk if you don’t invest in the security under consideration.…
Risk and return are the fundamental basis upon which investors make their decision whether or not they should invest in a particular investment. How they are related and the influence between the two, is the decision making process that all investors must weigh up. This essay will show how risk can influence risk premium, outlining their relationship and how risk and return are related.…
Risk – Probability that an actual return on an investment will be lower than the expected return.…
According to Chapter 9 of the text: the current value of a growing perpetuity is the next period’s cash flow (VCFT) divided by the spread between the assumed constant discount (r∞) and growth (g) rates:…
Present Value of an Ordinary Annuity= Payment [(1 - (1 / (1 + Discount Rate per period)number of periods)) / Discount Rate Per Period]…