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Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects’ NPVs and IRRs assuming a cost of capital of 12%. Which project would be selected, assuming they are mutually exclusive? Calculate the crossover rate.
Landmark Coal operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 62,500 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $325 per ounce and copper sells for $..
As the company accountant is currently on holiday you are required, by calculating net present value, internal rate of return and payback, to advise the company which option they should take. Calculate the approximate equivalent annual percentage cos..
The value of an input in its next best use is which of the following? Which of the following is the approach taken to determine how individuals value an option by looking at their actions? The provision of public goods by a private market is characte..
Consider a 7-month $110 American put option on a non-dividend-paying stock. Currently, the stock price is $100 and its volatility is 40%. The risk-free rate is 3% per annum. Price the put using a 10-step binomial trees.
Mary Watson is 24 years old and single lives in an apartment and has no dependents. Last year she earned 45,000 as a sales assistant for focus to business analytics: $3910 of her wages was withheld for federal income taxes. In addition, she had inter..
An investment requires investing $3,000 today with a net working capital investment of $250. It has a net cash free cash flow of $1,200 for each of the next four years and also returns the NWC in year 4. Assume WACC is 8%. What is the NPV? IRR? PI?
How can investors reduce the risk associated with an investment portfolio without having to accept a lower expected return?
Give an example of a perpetuity. How does a perpetuity differ from an annuity? Explain how to determine the present value of an uneven cash flow stream.
A furniture manufacturer produces both large desks and small desks (in whole numbers). Each type of desk is made entirely out of pine or entirely out of cherry. A total of 1000 board feet of pine and 1100 board feet of cherry are available for produc..
The Wolves Company is financed by 50% debt, and 50% equity.Their debt has an 8.5% annual interest rate. Their published Beta Coefficient is 1,57. The Risk Free Rate on U.S Treasury Securities is 5% and the return on the market portfolio is 10%. Compu..
Marten Corp has a 14% WACC with a 19% expected return on equity and a 60% debt-to-asset ratio. If Marten pays no income tax, what is the return on debt? If the debt-to-asset ratio increases to 80%, now what is Marten’s WACC?
Both bond A and bond B have 6.6 percent coupons and are priced at par value. Bond A has 8 years to maturity, while bond B has 15 years to maturity. a. If interest rates suddenly rise by 1.2 percent, what is the percentage change in price of bond A an..
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