M-Tel Is Financed Entirely with Equity, and the Firm's Stock

question 5

Multiple Choice

M-tel is financed entirely with equity, and the firm's stock has a beta of 0.85. M-tel is considering investing in a project that is expected to have a beta of 1.3. The project requires an initial outlay of $6 million and is expected to generate after-tax net cash flows of $1.3 million each year for 8 years. Calculate the NPV of the project. Assume the risk-free rate is 7% and the expected market return is 14%. (Note: Problem requires either calculator use or interpolation from the tables. The suggested solutions use calculator accuracy.)

• A) $249,685
• B) -$371,484
• C) $238,700
• D) -$352,800

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Definitions:

Difference

A point or way in which people or things are not the same; the state or condition of being unlike.

Social Justice

The concept of fair and just relations between the individual and society, measured by the distribution of wealth, opportunities for personal activity, and social privileges.

Affirmative Action

Policy measures designed to increase the representation of minorities and women in fields from which they have historically been excluded, through proactive recruitment and opportunities.

Preferential Treatment

The act of giving favorable treatment or advantages to a person or group over others, often based on personal biases or for strategic reasons.