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 1.6. The risk-free interest rate is 6% 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.)

referencesebook & resources

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

Explanation / Answer

Hi,

Please find the detailed answer as follows;

Cost of Capital = Risk Free Rate + Beta*(Market Return - Risk Free Rate) = 6 + 1.6*(14 - 6) = 18.80%

NPV = -120000000 + 17000000/(1+18.80%)^1 + 17000000/(1+18.80%)^2 + 17000000/(1+18.80%)^3 + 17000000/(1+18.80%)^4 + 17000000/(1+18.80%)^5 + 17000000/(1+18.80%)^6 + 17000000/(1+18.80%)^7 + 17000000/(1+18.80%)^8 + 17000000/(1+18.80%)^9 + 17000000/(1+18.80%)^10 = -$45722762.75

Answer is -$45722762.75

Thanks.

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