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Question - Smile4miles Pte Ltd is considering the opening of its new Learning Centre. The project will involve an investment of $20,000 and will produce a positive cash flow of $1680 in the first year. The cash flows will increase by 15% each year thereafter for another five years (i.e. the project runs for six years). At that stage the project will cease. The company expects a rate of return of 20% on this type of project. Smile4miles Pte Ltd has another option of investing this same $20,000 in renovating his property for his property rental business. The rental business will produce a positive cash flow of $4000 in every year i.e. the cash flow each year will remain the same thereafter for another five years at that stage the project will cease. The company expects a rate of return of 20% on this type of project.
Required -
a. Calculate the NPV for each of the investment opportunity.
b. Consider this is a mutually exclusive project. As an advisor which project(s) should the company proceed with and why.
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
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