Homework answers / question archive / Happy AS is formed to realize a 3-year project

Happy AS is formed to realize a 3-year project

Finance

Share With

Happy AS is formed to realize a 3-year project. The project is expected to give the following free
cash flows over the next 3 years (figures are in millions of kroner):
Time 1 2 3
Cash flow 200 250 180
An investment of NOK 500 million is required. The company will only be financed with
equity and will have 4 million shares.
The project's investment beta is estimated at 0.8, the market's risk premium is 5%, while the risk-free
interest rate is 3%. Assume that Modigliani & Miller's propositions I and II without taxes apply.
What is the present value of the project?