Assess the value of proposed investment projects.
Investment Project Value
This competency assessment addresses assessing the value of investment projects. The Arbitrage Pricing Theory helps calculate required stock returns considering a number of factors. 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? (Hint: Begin by constructing a timeline).
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. Please submit this Assignment through the Dropbox.
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.
Respond to the questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions. Your submission should be highly organized, logical, and focused.
Your submission must be written in Standard English and demonstrate exceptional content, organization, style, and grammar and mechanics.
Your submission should provide a clearly established and sustained viewpoint and purpose.
Your writing should be well ordered, logical and unified, as well as original and insightful.
A separate page at the end of your submission should contain a list of references, in APA format. Use your textbook, the Library, and the internet for research.
Be sure to cite both in-text and reference list citations where appropriate and reference all sources. Your sources and content should follow proper APA citation style. Review the writing resources for APA formatting and citation found in Academic Tools. Additional writing resources can be found within the Academic Success Center.
Your submission should:
include a cover sheet;
be double-spaced;
be typed in Times New Roman, 12 -point font;
include correct citations
be written in Standard English with no spelling or punctuation errors; and
include correct references at the bottom of the last page.
If work submitted for this competency assessment does not meet the minimum submission requirements, it will be returned without being scored.
