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Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 11 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 16 percent. Either method will require an initial capital outlay of $96,000. The inflows from projected business over the next five years are shown next. Years Method 1 Method 2 1 $ 33,600 $ 25,400 2 35,800 28,200 3 45,600 43,100 4 40,700 37,900 5 24,900 77,200 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. a. Calculate net present value for Method 1 and Method 2.(Do not round intermediate calculations and round your answers to 2 decimal places.) b. Which method should be selected using net present value analysis? Method 1 Method 2 Neither of these.
Managers should under no conditions take actions that increase their firm's risk relative to the market, regardless of how much those actions would increase the firm's expected rate of return. An individual stock's diversifiable risk, which is by its..
The lower the interest rate and the shorter the period of time:
General Electric sold jet engines on credit to Air France and invoiced €10 million payable in six months. Currently, the six-month forward exchange rate is $1.25/€ and the foreign exchange advisor for General Electric predicts that the spot rate is l..
According to the international fisher effect, if investor purchases a 5 year U.s. bond
Tyler Trucks stock has an annual return mean and standard deviation of 12 percent and 41 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 23.0 percent and 67 percent, respectively. What is t..
An audit committee is comprised of several members of the board of directors. The committee acts as the liaison between the independent auditor and the corporation. What is the responsibility of the Audit Committee of the Board of Directors?
A company is purchasing and installing a new machine. What is your calculated ERR? Show all your work including your cash flow diagram.
What is the common-size percentage for the inventory account?
Holmes, Inc., has offered $542 million cash for all of the common stock in Watson Corporation. Based on recent market information, Watson is worth $504 million as an independent operation. If the merger makes economic sense for Holmes, what is the mi..
You are a bank with $50 Billion of assets. what will you need to do with your portfolio?
You have purchased a call option (100 contracts) on Mercer Corporation common stock. The option has an exercise price of $20.00 and Mercer’s stock currently trades at $20.00. Calculate your net profit on the option if Mercer Corporation’s stock price..
The primary difference between a savings account and a money market account is:
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