Laura drake wishes to estimate the value of an asset, Ask an Expert

Finance

Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3,000 per year at the end of years 1 through 4 and $15,000 at the end of year 5. Her research indicates that she must earn 10% on low-risk assets, 15% on average-risk assets, and 22% on high-risk assets.

a. Determine what is the most Laura should pay for the asset if it is classified as

(1) Low-risk,

(2) Average-risk, and

(3) High-risk.

b. Suppose Laura is unable to assess the risk of the asset and wants to be certain she's making a good deal. On the basis of your findings in part a, what is the most she should pay? Why?

c. All else being the same, what effect does increasing risk have on the value of an asset? Explain in light of your findings in part a.

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91869502

Have any Question?Write your Review or question?

Related Questions in Basic Finance

Is there a particular capital structure that maximizes the

Is there a particular capital structure that maximizes the value of the firm? Explain.

Question - sophie corporation sc is planning to acquire a

Question - Sophie Corporation (SC) is planning to acquire a slower-growth competitor, which will materially increase SC's sales volume. The company to be acquired has pretax margins that are approximately the same as tho ...

Question - the hawaiian corporation expects this years net

Question - The Hawaiian Corporation expects this year's net income to be $12 million. The firm's target debt/assets ratio is 30 percent. This year, Hawaiian has $20 million profitable investment opportunities. According ...

Youre prepared to make monthly payments of 210 beginning at

You're prepared to make monthly payments of $210, beginning at the end of this month, into an account that pays 6.2 percent interest compounded monthly. How many payments will you have made when your account balance reac ...

Have the federal governments policies on drugs and

Have the federal government's policies on "drugs" and "narcotics" been successful?

One of your customers has just made a purchase in the

One of your customers has just made a purchase in the amount of $19,200. You have agreed to payments of $335 per month and will charge a monthly interest rate of 1.11 percent. How many months will it take for the account ...

The belgian vandeputte group has the following operating

The Belgian Vandeputte Group has the following operating structure: sales = 100, raw materials used in the business = 30, direct production costs = 40, administrative costs = 20. Operating cycle: raw materials inventorie ...

Assume that real risk-free rate r 100 the maturity risk

Assume that real risk-free rate (r*) = 1.00%; the maturity risk premium is found as MRP = 0.20%×(t - 1), where t = years to maturity; the default risk premium for AT&T bonds is found as DRP = 0.07%×(t - 1); the liquidity ...

Tom is pleased to know where the breakeven point is but his

Tom is pleased to know where the breakeven point is, but his business objective is not breaking even; he's in this deal to make money hopefully a lot of money. He has invested his personal savings, as well as other famil ...

Question - time value of money answer the following

Question - TIME VALUE OF MONEY Answer the following questions: a. Assuming a rate of 10% annually, find the FV of $1,000 after 5 years. b. What is the investment's FV at rates of 0%, 5%, and 20% after 0, 1, 2, 3, 4, and ...

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Basic Finance Expert