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Suppose you calculate the Net Present Value (NPV) for a project, given the project cash flows and a required rate of return of 12%. After you calculate the NPV, you discover that the actual required rate of return is 14%. The new NPV you calculate using a required rate of return of 14% would be
a. lower than the NPV calculated with a required rate of return of 12%.
b. higher than the NPV calculated with a required rate of return of 12%.
c. the same as the NPV calculated with a required rate of return of 12%.
d. uncertain because it could be either lower or higher than the NPV calculated with a required rate of return of 12%.
Your portfolio allocates equal funds to the DW Co. and Woodpecker, Inc. DW Co. stock has an annual return mean and standard deviation of 13 percent and 42 percent, respectively. Woodpecker, Inc., stock has an annual return mean and standard deviation..
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). Suppose that today you buy a bond wi..
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Shi Importers' balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi's tax rate is 40%, rd = 7%, rps = 8.5%, and rs = 11%. If Shi has a target capital structure of 30% debt, 5% preferre..
The expected return for the general market is 12.5 percent, and the risk premium in the market is 8.8 percent. Tasaco, LBM, and Exxos have betas of 0.878, 0.666, and 0.563, respectively. What are the appropriate expected rates of return for the three..
An analyst is evaluating a real estate investment project using the discounted cash flow approach. The purchase price is $3 million, which is financed 15 percent by equity and 85 percent by a mortgage loan. It is expected that the property will be so..
Photo light Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt/equity ratio of 0.60. It's considering building a new manufacturing facility. The facility costs $40 million now to build. This new plant..
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An increase in capital per worker will: Technological progress will: If technology advances, then:
A 5.85 percent coupon bond with 18 years left to maturity is offered for sale at $1,055.25. What yield to maturity is the bond offering?
If the chosen firm attempts to grow faster than its sustainable growth rate with modest increases in its debt ratio, how will this likely affect its WACC? What about very large increases in its debt ratio? Explain.
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