Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecast

Question

Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecasts for the project are as follows:

The firm's existing assets have a beta of 2.6. The risk-free interest rate is 4% and the expected return on the market portfolio is 14%. What is the project's NPV? (Enter your answer in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecasts for the project are as follows:

Explanation / Answer

cost of equity = risk free rate + beta * ( market return - risk free rate)

= 4 + 2.6 * ( 14 - 4) = 30%

K = 10          
NPV =- Initial investment outlay + [(Cash flow)/(1 +cost of equity/100)^k]    
k=1

K = 10           
NPV =- 220 + [(27)/(1 +30/100)^k]    
k=1

  = $ -136.53 m

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.