Bi-Lo Traders is considering a project that will - id6908506, ayoismeisjjjjuan

Question

Business: Bi-Lo Traders is considering a project that will produce sales of $45,950 and have costs of $26,300. Taxes will be $4,600 and the depreciation expense will be $2,725. An initial cash outlay of $2,150 is required for net working capital. What is the project s operating cash flow

ayoismeisjjjjuan · Accepted Answer

Stock D

12.30% this stock is correctly priced according to CAPM

Explanation:

We will calculate the Capital Assets Pricing Model (CAPM) for each stock

All have the same risk-free rate and market-rate. We change the beta for each Stock:

CAPM:

$Ke= r_f + \beta (r_m-r_f)$

risk free0.065

market rate0.105

premium market= (market rate - risk free) =0.04

Stock A

beta(non diversifiable risk)0.85

Ke= 0.065 + 0.85 (0.04)

Ke0.099009.22% this stock is no correctly priced.

Stock B

beta(non diversifiable risk)1.08

Ke= 0.065 + 1.08 (0.04)

Ke0.10820 10.82% this stock is no correctly priced.

Stock C

beta(non diversifiable risk)1.69

Ke= 0.065 + 1.69 (0.04)

Ke0.13260 13.26% this stock is no correctly priced.

Stock D

beta(non diversifiable risk)1.45

Ke= 0.065 + 1.45 (0.04)

Ke0.12300 12.30% this stock is correctly priced according to CAPM

"Bi-Lo Traders is considering a project that will produce sales of $45,950 and have costs of $26,300. Taxes will be $4,600 and the depreciation expense will be $2,725. An initial cash outlay of $2,150 is required for net working capital. What is the project's operating cash flow

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