Problem: CAPM and Valuation. You are a consultant to a firm evaluating an expansion of its current business. The cash flow forecasts (in millions of dollars) for the project are:
Years Cash Flow
0 -100
1-10 + 15
Based on the behavior of the firm's stock, you believe that the beta of the firm is 1.4. Assuming that the rate of return available on risk-free investments is 4 percent and that the expected rate of return on the market portfolio is 12 percent, what is the net present value of the project?