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Suppose that a mining operation has spent $8 million developing an ore deposit in South America. Current expectations are that the deposit will require 2 years of development and will result in a realizable cash flow of $10 million at that time. The company engineer has discovered a new way of extracting the ore in only 1 year, but the procedure would necessitate an immediate outlay of $1 million.
Required:
Compute the IRR for the new outlay. (Note: There are two solutions! One is 787%. Find the other one.)
Based on your answer to (a), use the IRR criterion to determine if the company should make the outlay. Assume the market interest rate is 15% on 1- and 2-year bonds.
Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 33%. The T-bill rate is 7%. Stock A 30 % Stock B 35 % Stock C 35 % A client prefers to invest in your portfolio a proportion (y) that maximize..
You placed $8,173 in a saving account today that earns an annual interest rate of 10.41 percent, compounded semi-annually. How much will you have in this account at the end of 27 years? Assume that all interest received at the end of the period is re..
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Maggie's Muffins, Inc., generated $4,000,000 in sales during 2013, and its year-end total assets were $2,600,000. Also, at year-end 2013, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and ..
Average cost of a desktop computer must be less than or equal to$2,100. using a sample of 64 retailers reveals a mean price of $1,951, with a standard deviation of $242. does the manager proceed with using a 5 percent significant level?
Provide proof and please be specific about required conditions on relations between financial variable(s) such as of both countries.
We have the Fitzpatrick bond which has a convexity of 30, duration of 4, a ytm of 12% and a maturity of 25 years. The central bank is injecting huge liquidity, and there is no fear of inflation. If the yields alter by 100 basis points, what would the..
You will analyze three different stocks, all of which have a required return of 20% and a most recent dividend of $3.50 per share. Stocks A, B, and C are expected to maintain constant growth rates in dividends for the foreseeable future of 12%, 0%, a..
A 5,000 par value municipal bond with a coupon rate of 4.73 percent sells for $4,682 and has ten years until maturity. What is the yield to maturity of the bond?
The expected rate of return on the market portfolio is 9.75% and the risk–free rate of return is 1.75%. The standard deviation of the market portfolio is 19%. What is the representative investor’s average degree of risk aversion?
Portray this in a cash flow diagram time line and with an 11.25% borrowed interest rate, calculate the net present worth of money.
The Strik-it-Rich Gold Mining Company is contemplating expanding its operations. To do so it will need to purchase land that its geologists believe is rich in gold. Strik-it-Rich’s management believes that the expansion will allow it to mine and sell..
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