Project Evaluation - Using CAPM

Data: Company: athletic competitionball Plc Products :Footballs and basketballs Capital to invest :£ 100.000 examine 1: do space Project 2:Manufacture Shirts ProjectRevenues 1st Year2nd Year3rd Year Shoes £ 80,000 £ 75,000 £ 25,000 Shirts £ 60,000 £ 50,000 £ 50,000 Rate on a Gov Bond(The risk of exposure-free run):5% FTSE 100 (expect rate of the securities industry):8% toutballs ?:0.90 Shoes Leaders ?:0.95 Shirts Leaders ?:1.1 a)Which project should Sportball plc choose? In order to be adequate to(p) to go down anyone of the projects, first of all we must canvass the ß previously that we depart choose to evaluate. Therefore, we gather in to be very careful in this decision, since on this, could depend the triumph of the project evaluation. To choose the capture beta, we must study in what segment or field Sportball Plc is going to start up in, since this unsex out give us the risk debate beta, thus to calculate the corr ect expect rate to tie our analysis.

Assumption 1: As the company will get into a new branch of the sport accessories, which could be the Sport shoes or Sport Shirts, we will use the ? of for individually one industry to calculate the expected rate and then determinate the feasibility of the projects: However as illustration, it will channelize how would be the judgment with Sportballs ?: market place -risk premium We call Market -Risk premium to the difference between the expected rate of the market and the risk free rate so 0.08 - 0.05 = 0.03 Where 0.03 will be our Market -Risk premium to evaluate de projects. Calculating the Expected range We know that the expected return on the stock, using CAPM, is: exploitatio! n Sportballs ß (0.90) will guard: = 7.70 % (1) Using Shoes leaders ß (0.95) will have: = 7.85 % (2) Using Shirts leaders ß (1.1) will have:... If you want to get a full essay, order it on our website: OrderEssay.net

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