Question 1:
Bill is evaluating 2 mutually exclusive pollution devices. The real discount rate is 5%. The cash flows for each device are as follows
Time Device A Device B
0 (100,000) (200,000)
1 (5,000) (3,500)
2 (5,000) (3,500)
3 (5,000) (3,500)
4 (3,500)
5 (3,500)
6 (3,500)
a) Compute the cost of each machine in terms of NPV?
b) Which machine will be cheaper for the company to use? Explain
Question 2:
Consider the following data for A Corporation and B Corporation
A Corp B Corp
Covariance with Market 34.2% 25.5%
Variance Market 30% 30%
% Debt 40 25
% Equity 60 75
D/E Ratio 67% 33%
Calculate the asset Beta for corporations A and B