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A company is considering an investment in a new project which would require $55,000 worth of (unrecoverable) capital expenditures and an increase of $45,000 in net working capital that will be recovered at the end of the project. Each year, starting at the end of the first year, the operating cash flows of the project will be $22,000 for 5 years. The project is so risky and so crazy its WACC is 17%. What is the net present value of the project?
Mark Goldsmith’s broker has shown him two bonds. Each has a maturity of 5 years, a par value of $1,000, and a yield to maturity of 12%. Bond A has a coupon interest rate of 6% paid annually. Bond B has a coupon interest rate of 14% paid annually. Cal..
A bond has a $1,000 par value, 12 years to maturity, and a 8% annual coupon and sells for $980. What is its yield to maturity (YTM)? Assume that the yield to maturity remains constant for the next 2 years. What will the price be 2 years from today? R..
A stocks next 2 dividends are as follows: $0.25 and $1.00. After that, the stock is expected to grow at a rate of 4% indefinitely. The required return on this stock is 16%. Compute its fair market value.
Since real options provide flexibility that can greatly change the value of a project, it should be considered in capital budgeting methodology. Explain why
Using CAPM A stock has a beta of 1.10 and an expected return of 12 percent. A risk-free asset currently earns 2.6 percent. What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets has a b..
Jenny Clayton is looking to invest in some 5-year bonds that pay annual coupons of 6.25 percent on a face value of $1,000 and are currently selling for $588.79. What is the yield to maturity on these bonds? Friendly Airlines stock is currently sellin..
Stock dividends are_____ and capital gains are ____
Beaksley, Inc. is a very cyclical type of business which is reflected in its dividend policy. The firm pays a $2.00 a share dividend every other year with a payment being paid today. Five years from now, the company is repurchasing all of the outstan..
The patterson Hale Trucking Company needs to expand it fleet by 90% to meet the demands of 2 major contracts, the cost of expansion is estmated to be $15 million. PHT maintains a 30 % debt ratio and pays out 90% of its earnings in common stock divide..
You purchased one EAW, Inc. 6 percent coupon bond one year ago for $1,020. The bond makes annual payments and matures four years from now. You sell the bond today when the required return is 5 percent. The inflation rate was 2.8 percent over the past..
Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits. Do most managers of publicly traded companies adhere to th..
What is the delta of a short position in 4,000 European call options on gold futures? The options mature in eight months, and the futures contract underlying the option matures in nine months. The current nine-month futures price is $10 per ounce, th..
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