Answer to Question #305062 in Finance for hass

Question

Stock SStock W

Expected Return 12%

Beta11.5

(a)Assume the CAPM holds, calculate the risk-free rate and expected market index risk premium.

(b)The stock of Prince Corp. has an expected rate of 25% and a beta of 2, what is likely to happen to the share price of Prince Corp.

c) Great Food Corp. is considering whether to invest in a new food manufacturing process that minimize carbon emission. The project will require an initial investment of £10 million. Suppose this project will produce the following free cash flows: 2m in year 1; 4m in year 2; 3m in year 3; and 4m in year 4. In year 4 you expect the growth rate of the free cash flow is 2% for the foreseeable future. The required rate of return on this project is 14% return for the first three years, and a 10% return thereafter. What is the NPV of this project?

Answer 1

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