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Question 1
Describe the role a company’s cost of capital plays in capital budgeting for both net present value (NPV) and internal rate of return (IRR) calculations. What are the rules for capital budgeting decisions that are made based on NPV and IRR. Explain how the dollar value of a project’s NPV relates to the overall value of the firm. The NPV profile graphs NPV values on the y-axis and discount rates on the x-axis. If Project X's profile crosses the x-axis at the 20% value, what does this tell us about the project?
Question 2
Define the cost of equity capital. Is it an accounting cost If not, what is it?Is it a low cost source of capital or a high cost source compared to other possible sources of capital? Explain.What would happen to a firm if it failed to deliver to its common stockholders the cost of equity capital?This question refers only to common equity.
Question 3
Assume each of the following functions is linear: fixed costs, variable costs, total costs, and total revenue.If you were to graph each of these against the number of units produced and sold (assume these two are equal) as depicted in your book and in class, describe the slopes of each of these four lines. What would we learn about a company’s upside and downside potential by studying these four lines on the graph described in this question? Explain.
Describe the setting and access to potential subjects. If there is a need for a consent or approval form, then one must be created. Describe the strategies to deal with the management of any barriers, facilitators, and challenges.
The risk-free rate equals 6%, and the expected risk premium on the market portfolio equals 7%. A particular company has bonds outstanding that offer investors a yield to maturity of 6.5%. What is the beta of the firm's assets?
A man is planning to retire in 25 years. He wishes to deposit a regular amount every three months until he retires, so that, beginning one year following his retirement, he will receive annual payments of $60,000 for the next 10 years. How much must ..
Teresina Company has debt/assets ratio 60%, which is too high and it should be at 55% to be optimal. This debt reduction should also reduce the bankruptcy costs by $25 million. At present, Teresina has 6 million shares of common stock selling at $45 ..
You have $7,863 you want to invest for the next 34 years. You are offered an investment plan that will pay you 11.8 percent per year for the next 9 years and 19.2 percent per year for the remaining years. How much will you have at the end of the 34 y..
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 semi annual interest payments. Bond A has a coupon rate..
During a particular year, the Treasury note rate was 3.25%, the market return was 7% and a portfolio manager with beta of 0.5 realised a return of 8%. Evaluate the manager based on portfolio alpha.
You have been given the expected return data shown in the first table on 3 assets- F, G and H over the period 2016-2019. Calculate the expected return over the 4 year period for each of the alternatives. Calculate the standard deviation of returns ov..
The price of an S&P 500 Index futures contract is $988.26 when you decide to enter a long position. When the position is closed the futures price is $930.32. If there are no settlement requirements, what is your percentage gain or loss under a 15.0% ..
On November 27, 2007, The Dow Jones Industrial Average closed at 12,958.44, which was up 215.04 that day. What was the return (in percent) of the stock market that day?
A one-year call option on a stock with strike price of $45 cost $5 and a one-year put option on a stock with strike price of $35 cost $3. A trader shorts two put options and shorts one call option. What is the breakeven stock price, below which the t..
Sequins AB is considering selling one of its two product lines. Product line A is expected to generate a free cash flow of 2 million per year with a growth rate of 3%. Product line B is expected to generate a free cash flow of 1 million per year with..
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