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Expected Return and CAPM

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9. Bill plans to open a do-it-yourself dog-bathing center in a storefront. The bathing equipment will cost $160,000. Bill expects the after-tax cash inflows to be $40,000 annually for 7 years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assume the required rate of return is 10%. What is the project's NPV?
a. $14,210
b. $27,322
c. $32,556
d. $34,737
e. $45,001

10. What is the expected market return if the expected return on asset A is 16% and the risk-free rate is 7%? Asset A has a beta of 1.2.
a. 9.5%
b. 14.5%
c. 16.5%
d. 17.5%
e. 20.5%

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Solution Preview

You can use a financial calculator or excel to solve such questions. I'll tell you the formula in Excel. In Excel ...

Solution Summary

The solution provides detailed answers and explanation for the two multiple choice questions being asked. The solution does not only give the correct letter response but also provides a detailed explanation for the correct answer. The solution is very easy to follow along for anyone with a basic understanding of CAPM and finance. Overall, an excellent response to the question being asked.