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Henry Inc. is considering Projects A and B, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The WACC is 8.75%. a. Calculate the NPV and IRR. Year 0 1 2 3 4 CFS −$1,100 $375 $375 $375 $375 CFL −$2,200 $725 $725 $725 $725 b. Also calculate the following: Profitability Index, MIRR and Compare and discuss each method and which projects should be selected and why. Profitability Index MIRR.
Assume that a 5-year Treasury note has no maturity risk premium, and that the real, risk-free rate of interest is 3.5 percent. If the T-note carries a yield to maturity of 10 percent, and if the expected average inflation rate over the next 4 years i..
Cumberland Furniture wishes to establish a prearranged borrowing agreement with a local commercial bank. The bank's terms for a line of credit are 2.80% over the prime rate, and each year the borrowing must be reduced to zero for a 30-day period. Wha..
You believe that the Beta Alpha Watch Company will be worth $100 per share one year from now. How much are you willing to pay for one share today if the risk-free rate is 4%, the expected return on the market portfolio is 11%, and the company’s beta ..
Calculate the deadweight loss of this tax when: - Supply of stuffed rabbits is Q = 400., - Supply of stuffed rabbits is Q = 12P.
The estimated total manufacturing overhead cost may have been too high and the estimated total amount of the allocation base may have been too low.
Klose Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Klose must raise additional capital to fund its upcoming expansion.
An investment offers $7,000 per year for 20 years, with the first payment occurring 1 year from now. Assume the required return is 10 percent. What would the value be today? A financial security pays $2 next year, $4 the year after that, then $2, the..
If, at expiration, the stock is selling for $36 per share, what are your put options worth? What is your net profit?
A stock had returns of 8 percent, -4 percent, 6 percent, and 16 percent over the past four years. What is the standard deviation of these returns?
Which type of risk that is associated with investments can be diversified away under the right conditions?
Cool Manufacturing has an expected EBIT of $89,000 in perpetuity and a tax rate of 35 percent. The firm has $210,000 in outstanding debt at an interest rate of 8.80 percent, and its unlevered cost of capital is 11 percent. What is the value of the fi..
Mullineaux Corporation has a target capital structure of 62 percent common stock, 7 percent preferred stock, and 31 percent debt. Its cost of equity is 12.7 percent, the cost of preferred stock is 5.7 percent, and the cost of debt is 7.4 percent. The..
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