7. You have estimated the beta of Ajax Ltd against the ASX200 as being 1.2. The average risk premium for the Australian market you estimate to be 6% and the risk free rate as represented by the current yield to maturity of an Australian government 10-year bond is 3.9%.
Estimate the cost of equity for Ajax Ltd, using CAPM.
(Show your answer as a percentage to one decimal place, eg 99.9%)
Answer:
Number
Unit
8. A company is considering investing in some new equipment. The new equipment will deliver cost savings of $100,000 in the first year and $130,000 in the second year, before being sold for $56,000 at the end of the second year. It will cost $230,000 to buy and install the new equipment, which will be paid on purchase.
Assuming a cost of capital equal to 11.4%, estimate the NPV of the investment in new equipment.
(Show your answer with no decimal places.)
Answer:
Unit
Number
9. You have estimated the NPV of a project and wish to evaluate the sensitivity of the NPV you have estimated to a change in the cash flows estimated for the project. All else being held equal, if you were to estimate higher future cash flows for the project, would you expect the NPV to:Choose one answer.
A. Show no change
B. Fall
C. Rise
D. Either rise or fall
10. You have estimated the NPV of a project and wish to evaluate the sensitivity of the NPV you have estimated to a change in the estimation of the risk inherent in the project. If you were to increase your estimate of the risk associated with the project, resulting in an increased discount rate, would you expect the NPV to:Choose one answer.
A. Rise
B. Fall
C. Either rise or fall
D. Show no change