Your Firm Is Considering a Project That Is Expected to Produce

question 54

Multiple Choice

Your firm is considering a project that is expected to produce a single cash flow of $2,000 next year. The market beta of the project is 2.2. The equity premium is expected to be 6%, and the
Risk-free rate is 3.8%. What is the maximum amount your firm should be willing to invest in
This project? Round your answer to the nearest dollar.

• A)$1,709
• B)$1,639
• C)$1,841
• D)$2,000

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Definitions:

Realized Gain

The profit earned from the sale of an asset when the sale price exceeds the purchase price, which has become actual rather than just theoretical.

Fair Market Values

The estimated price at which a property or asset would trade in a competitive auction setting.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

Bonds Payable

A liability account that records the amounts a company owes to holders of its issued bonds, to be repaid at a specified maturity date.