ybarraeleonora ybarraeleonora

30-04-2024
Mathematics

Answered

If you make it back you can sell the spices for an expected price of $30,000 and the ship for a known price of $10,000 (certain). Should you set sail if the risk-free rate is 5% and the expected return on the market is 15%? Assume CAPM assumptions are satisfied. (Hint: there are two distinct projects in this venture. The “ship” project and the “spice” project.)What is the beta of the ship project? What is its expected return? (b) What is the present value of the ship? (c) What is the present value of the spice project? (d) What is the overall NPV of the venture (ship plus spice)? Is it positive? To answer this question, assume that spices cost $1,000 and the ship costs $10,000.

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