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Which of the following statements about the net present value method of selecting projects is true?
a) For two mutually exclusive projects, the net present value and internal rate of return methods select different projects if the required rate of return is greater than the discount rate at which the two net present value profiles intersect.
b) If projects are independent, then the project with the highest net present value (providing it is greater than zero) is accepted.
c) If the projects are mutually exclusive, then all projects with a net present value greater than zero are accepted.
d) If a project's cash flows are positive after discounting them by the required rate of return, then it may be accepted if there are no better alternatives.
Consider two firms A and B that are identical in all respects except capital structure. Firm A has $100 million in equity outstanding and $40 million in bonds outstanding. Firm B has $140 million in equity outstanding and $0 million in bonds outstand..
Explain how purchase of the apple press might affect the company's revenue goals. Based on this information, explain whether Anthony's Orchard should invest in the apple press.
The CPI index increased from 244.4 to 255.9 over the year and the real rate is 4.33%. If you had $450 in the bank in the beginning of the year, how much do you have now?
Suppose that at the present time, one can enter 5-year swaps that exchange LIBOR for 5%. An off-market swap would then be defined as a swap of LIBOR for a fixed rate other than 5%. For example, a firm with 10% coupon debt outstanding might like to co..
You are working as a corporate treasurer and observe the following two exchange rates. Calculate, using $1 million how you could make an arbitrage (risk-free) profit.
A corporate bond has a face value of $1,000 and an annual coupon interest rate of 7%. Interest is paid annually. 10 years of the life of the bond remain. The current market price of the bond is $1232. To the nearest 1/100 0f 1 percent, what is the yi..
You purchased a zero coupon bond one year ago for $138.23. The market interest rate is now 7 percent. If the bond had 28 years to maturity when you originally purchased it, what was your total return for the past year? Assume semi-annual compounding.
A manager believes his firm will earn a 12 percent return next year. His firm has a beta of 1.2, the expected return on the market is 8 percent, and the risk-free rate is 3 percent. Compute the return the firm should earn given its level of risk and ..
While checking the Wall Street Journal bond listings you notice that the price of an AT&T bond is the same as the price of a K-Mart bond. Based on this information you know that
If a company decides to increase its ratio of total debt / total assets from 30% to 50% as a means of increasing its return on equity (ROE), and it is able to maintain a 4.5% return on assets(ROA), what will be the new return on equity (ROE) after it..
You are considering purchasing a house to rent to students. Would you use net present value (NPV) or internal rate of return (IRR) to evaluate this type of project?
Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $820,322, $863,275, $937,250, $1,018,610, $1,212,960, and $1,225,000 over the next six years. If the appropriate disco..
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