Ed's Electronic Devices Has an Asset Beta of 1

question 124

Essay

Ed's Electronic Devices has an asset beta of 1.2. The market rate of return is 12% and the risk-free rate of return is 2%. Ed is considering updating his production technology. If he does so, he expects the cash streams indicated in the table below. Given this information, should Ed update his production technology?

---

Definitions:

Average Cost

A calculation that divides the total cost of goods available for sale by the total units available for sale, offering a way to determine the cost of an item's inventory.

First-In, First-Out

An inventory valuation method where the oldest inventory items are recorded as sold first, used in both accounting and inventory management.

Last-In, First-Out

An inventory valuation method where the most recently produced items are the first to be expensed, often used in industries where inventory items are indistinguishable.

Lower-Of-Cost-Or-Market

The lower-of-cost-or-market rule is an accounting principle requiring companies to record the cost of inventory at the lower value between its original cost and current market price.