This competency assessment addresses assessing the value of investment projects. The Arbitrage Pricing Theory helps calculate required stock returns considering a number of factors. In this Assignment, you will apply Arbitrage Pricing Theory to a business scenario.

Prepare this Assignment as a Word document. List each question followed by your answer.

Complete problem: Cost of Equity-CAPM

XYZ, Inc. has a beta of 0.8. The yield on a 3-month T-bill is 5%, and the yield on a 10-year T-bond is 7%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 20%. What is the estimated cost of common equity using the CAPM? Show your work.

Complete problems: NPV, IRR, MIRR, Profitability Index, Payback, Discounted Payback

A project has an initial cost of $60,000, expected net cash inflows of $10,000 per year for 8 years, and a cost of capital of 12%. Show your work.

What is the project’s NPV? (Hint: Begin by constructing a timeline).

What is the project’s IRR?

What is the project’s MIRR?

What is the project’s PI?

What is the project’s payback period?

What is the project’s discounted payback period?

Your division is considering two investment projects, each of which requires an up-front expenditure of 20 million. You estimate that the investment will produce the following net cash flows:

Year Project A Project B

1 $5,000,000 $20,000,000

2 10,000,000 10,000,000

3 20,000,000 6,000,000

What are the two project’s net present values, assuming the cost of capital is 5%? 10%? 15%?

What are the two projects’ IRRs at these same costs of capital?

Show your work.

Prepare this Assignment responding to the problems as an Excel® or Microsoft® Word®, showing all necessary formulas and steps. List each question, followed by your answer. Please submit this Assignment through the Dropbox.

The Module 3 Competency Assessment has 3 parts:

Part 1 Analyze the discounted cash flow approach

Calculate cost of equity using CAPM

Part 2 Apply the NPV equations of an investment to project its NPV

Calculate a project’s NPV

Calculate a project’s discounted payback period

Calculate a project’s IRR

Part 3 Estimate an investments Net Present Values

Demonstrate a project’s NPV assuming cost of capital at different percentages

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