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XL energy is considering a project to set up windmills next to the Stone Arch bridge. Setting up these windmills will cost $500 million upfront, but it will qualify the firm to receive a “clean energy subsidy” of an amount $60 million each year. In addition, it will reduce XL energy’s reliance on the market for coal and reduce cost of production by $15 million each year. In general the lifespan of windmills is 3 years at the end of which they will have to be dismantled and sold for scrap for 15 percent of their initial cost. The subsidies arrive at the beginning of every year. All estimates of avoided costs are made assuming that they occur at the beginning of the year. The nominal discount rate through the whole period is 8 percent and the rate of inflation is 4 percent. Should XL energy invest in this project?
Suppose the interest rate on a 2-year treasury security is 4.75% and the interest rate on a 5-year treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the 3-year treasury rate two years ..
An insurance company’s projected loss ratio is 77.5 percent, and its loss adjustment expense ratio is 12.9 percent. It estimates that commission payments and dividends to policyholders will add another 16 percent. What is the minimum yield on investm..
Explain the theory of Comparative Advantage, and its implication for production and trade. Are there some countries that have no comparative advantage? What happens if two countries have exactly the same skill, technology, and labor costs? How could ..
Nora, a highly motivated entrepreneur plans on applying for a business loan from Bank of America. She finds out that the percent change in price of business loans increased to 7% last month. This resulted in a 50% percent change in quantity demanded ..
If these are the only two investments in her portfolio, what is her portfolio's beta?
School spent $100,000 on textbooks for the fall 2016 semester. It had expected to have a total enrollment of 450 students who would each have needed four books at a cost of $65 each. What is the textbook expense variance? IS it favorable or unfavorab..
Hankins Corporation has 9.3 million shares of common stock outstanding, 680,000 shares of 7.3 percent preferred stock outstanding, and 193,000 of 8.5 percent semiannual bonds outstanding, par value $1,000 each. what rate should the firm use to discou..
You just won a very special kind of lottery. Instead of receiving a large lump sum now, for tax reasons this lottery makes equal yearly payments of $ 5,760 for the rest of your life! The only catch is that you have to wait 2 years for the first payme..
Janus Fund Group, historically an actively managed mutual fund group that often charged load fees to enter and exit the fund. What changes do you suppose are taking place in financial services that is leading to the consolidation of mutual fund compa..
George bought a piece of equilvalent for 35,000$. The equipment has a useful life of 10 years and a salvage value of 2,000$ at the end of its useful life. Assume that the annual interest rate is 9%. Calculate the present value of deprecation, using t..
Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the corporate (composite) WACC is 12.0%.
Peter Griffin plans to retire in 20 years (1st withdrawal in year 21). He is told by Glenn Quagmire that he will need about $135,000 per year to fund his retirement. Peter wants to be able to maintain that level of purchasing power forever (Assume in..
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