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A company has the option of building a warehouse now or building it three years from now. The cost now would be $400,000, but three years from now the cost is estimated to be $500,000. If the company's MARR (real i) is 12 % per year and the inflation rate is 10 % per year over the next three years, what is the present worth cost today of the $500,000 building purchased three years now when inflation is considered? (Enter your answer as a number without the dollar $ sign.)
A financial institution is permitted to use leverage u to a maximum debt equity ratio of 20. Currently the bank finances its $100 of assets with $4.5 of equity and $95.5 of debt. If asset values fall to $91 the bank will have a capital shortage of $9..
What is the opportunity cost associated with this decision? What is the present value of the cost of this decision as of today? Restate this cost in terms of year-1 dollars.
For the bond problem, assume interest payments are on an annual basis. Kilgore Natural Gas has a $1,000 par value bond outstanding that pays 9 percent annual interest. The current yield to maturity on such bonds in the market is 12 percent. Compute t..
Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. The project will produce the same after-tax cash inflows of $468,985 per year
A treasury manager is in the process of developing cash transfer rules for the firm. Currently, the firm's bank charges $15 per wire and $0.30 per ACH. The ACH takes 1 day longer to clear. The firm's account earns an earnings credit rate of 0.50%, an..
Which bond would have the greatest change in value given a 1% increase in the required rate of return on all bonds?
Bryceton, Inc. has bonds on the market with 13 years to maturity, a yield-to-maturity of 9.2 percent, and a current price of $802.30. The bonds make semiannual payments. What is the coupon rate? Dexter Mills issued 20-year bonds a year ago at a coup..
Based on the CAPM, which of the above shares are undervalued, overvalued or correctly valued on the share market? Show all calculations and reasons for your answers.
Calculate the price of an option that caps the 3-month rate, starting in 15 months' time, at 13% on a principal amount of $1,000.
Susie deposits $1500 into an account today and then $1000 into the account 10 years later. Assume that interest is credited to the account at a nominal annual interest rate of i^(6), convertible every two months, for the first 5 years, and at a nomin..
Assume that interest rate parity holds and that 90-day risk-free securities yield 5% in the United States and 5.3% in Germany. In the spot market, 1 euro equals $1.40. What is the 90-day forward rate? Is the 90-day forward rate trading at a premium o..
How can sensitivity analysis be used in conjunction with CVP analysis?- Why is a declining margin of safety over a period of time an issue of concern to managers?
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