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IRR and NPV A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $879.13 $250 $10 $5 Project L -$1,000 $0 $250 $400 $784.22 The company's WACC is 10.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places. %
How can a portfolio/financial manager use beta to manage a portfolio? (Give examples of different type of strategies)
A forward contract forces its buyer to purchase the underlying asset at the forward rate. In general, hedging with derivative contracts involves taking a position in the derivatives market that allows you to offset potential losses you might incur wi..
Campbell's father holds just only one stock, East Coast Bank (ECB), which he thinks is a very low-risk security. Campbell agrees that the stock is relatively safe, but he wants to demonstrate that his father's risk would be even lower if he were dive..
What is the Present Value of a perpetuity of $100 per year if the first payment will be received one year from now and the appropriate interest rate is 8% per year? Continuing the previous problem, what is the present value of this perpetuity if the ..
Explain the concept of Expected Return of a Portfolio and the different ways to calculate it.
Where does the line item “financing surplus (or requirement)” appear? When determining cash flow from financing activities,
Consider Sun Java Beans, headquartered in Phoenix but producing coffee beans for all over world. How can they use options on coffee as risk reduction strategy.
Williamson, Inc., has a debt–equity ratio of 2.57. The company's weighted average cost of capital is 9 percent, and its pretax cost of debt is 7 percent. The corporate tax rate is 40 percent. What is the company’s cost of equity capital? What is the ..
The standard deviation of the market-index portfolio is 20%. Stock A has a beta of 1.5 and a residual standard deviation of 30%. What would make a larger increase in the stock's variance: an increase of .15 in its beta or an increase of 3% (from 30% ..
Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $760,000. The lot was recently appraised at $792,000. At the time of the purchase, the company spent $56,000 to grade the lot and another $4,200 to build a small buildi..
The dumonts take- home pay (after deductions for taxes and benefits) is approximately $6045 monthly. Currently nonmortgage debt payments equal $911 (i.e, $405 auto, $100 miscellaneous credit, $196 student loan, and $210 furniture). Calculate and inte..
Horizon Value of Free Cash Flows Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2017, and the weighted average cost of capital is 11.2%. What is the horizon (continuing) val..
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