08-20-2010, 01:23 AM

Hi,

I am supposed to repeat a Financing Management Module and I am a bit stuck with the following question, I am not too sure how to deal with the Beta Factor? Any help is greatly appreciated.

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Question

Alpha plc has an opportunity to invest in a project that would last one year. Lamda plc has three projects, each of which would last for a year. The three projects are located within different industrial sectors. It is expected that, over the coming year, the market rate of return will be 6% and the risk-free rate of interest will be 2%.

The projectsâ anticipated net cash flows (forecast to be receivable at the end of the year), together with their corresponding beta factors are as follows

Alpha plc

Â£000 | Beta factor

1,000 | 1.3

Lamda plc

Â£000 | Beta factor

400 | 1.4

200 | 0.7

400 | 1.5

Required

(a) Calculate the gross present value of the projects that can be undertaken by Alpha plc and Lamda plc;

(b) Calculate the beta factor for the three-project portfolio open to Lamda plc;

I am supposed to repeat a Financing Management Module and I am a bit stuck with the following question, I am not too sure how to deal with the Beta Factor? Any help is greatly appreciated.

--------------------------------------------------------------------

Question

Alpha plc has an opportunity to invest in a project that would last one year. Lamda plc has three projects, each of which would last for a year. The three projects are located within different industrial sectors. It is expected that, over the coming year, the market rate of return will be 6% and the risk-free rate of interest will be 2%.

The projectsâ anticipated net cash flows (forecast to be receivable at the end of the year), together with their corresponding beta factors are as follows

Alpha plc

Â£000 | Beta factor

1,000 | 1.3

Lamda plc

Â£000 | Beta factor

400 | 1.4

200 | 0.7

400 | 1.5

Required

(a) Calculate the gross present value of the projects that can be undertaken by Alpha plc and Lamda plc;

(b) Calculate the beta factor for the three-project portfolio open to Lamda plc;