一个corporate finance的题目

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A real investment opportunity costs £1m. It generates an expected risky revenue cash flow of £100,000 each year, but requires annual risk free maintenance costs of £10,000. Assume these cash flows continue indefinitely. Finally, the project gives you access to cheap government financing below the current market rate. You estimate that the financing benefits have a net present value of £50,000. The risk free interest rate is 5%, and the expected rate of return on the market index is 12%. The beta-risk of the revenue stream is 0.75.

a) Work out whether the project is worthwhile. State all additional assumptions made.

b) You are a bit uncertain about the beta-estimate for the revenue stream. The equity of a firm in

the same industry trades with a beta of 2. This firm has a debt-equity ratio of 1. The debt is nearly risk free. Work out whether the project is worthwhile given this additional information

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关键词：Corporate Finance Financ Finan Nance Finance 题目 Corporate

E(Rm)=0.12, Rf=0.05, Betai=0.75

E(Ri)=Rf+[E(Rm)-Rf]*Betai=0.05+[0.12-0.05]*0.75=0.1025

a)NPV=-1000000+(100000/Rm)-(10000/Rf)+50000

=-1000000+(100000/0.12)-(10000/0.05)+50000=-316666.67<0

b)assumption: zero-tax

BetaL=2(levered company)

Ke(cost of equity)=Rf+[E(Rm)-Rf]*BetaL=0.05+[0.12-0.05]*2=0.19

WACC=50%*0.19+50%*0.05=0.12

NPV=-1000000+(100000/WACC)-(10000/Rf)+50000

=-1000000+(100000/0.12)-(10000/0.05)+50000=-316666.67<0

Under the condition of zero tax, the cost of captal does not depend on the capital structure. 

So even if the capital structure is changed, the project is still not worthwhile.

好像这个题目反映的就是著名的MM定理，不过偶不喜欢这个“MM”,哈哈