P3 Exam Dumps | RFG is considering a major expansion that will result in a more diversified business model. At present,

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Question 70/113

RFG is considering a major expansion that will result in a more diversified business model.
At present, RFG's market capitalisation is $240 million. This is based on a beta of 1.6. The risk free rate is 4% and the market rate of return is 9%. RFG is financed entirely by equity. The company generates an annual cash surplus of $28.8 million.
The expansion will cost $50 million and will generate future cash flows of $12 million in perpetuity. This new business will reduce RFG's beta to 1.4.
Calculate the adjusted present value of the expansion.

A. $81 million

B. $131 million

C. $59 million

D. $321 million

Correct Answer: A

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