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Portfolio Theory: Net Present Value

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

Years Cash Flow ($ millions)
0 -100
1-10 +15

The firm's existing assets have a beta of 1.4. The risk-free interest rate is 4% and the expected return on the market portfolio is 12%. What is the project's NPV?

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Solution Summary

Solution describes the steps to calculate NPV in the given case.

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Asset beta=b=1.40
Risk free rate=rf=4%
Expected market return=rm=12%
Expected return on ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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