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The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $ 6,750 and has an expected life of 3 years. Annual net cash flow from each project begin 1 year after the initial investment is made and have the following probability distributions: Project a Project b probability Net cash flows probability Net cash flows 0.2 6,000 0.2 $ 0 0.6 6,750 0.6 6,750 0.2 7,500 0.2 18,000 BPC has decided to evaluate the riskier project at a 12% rate and the less risky project at a 10% rate Question: b- What is the risk adjusted NPV of each project? Answers: NPVA=$ 10,036 NPVB= $ 11,624 I need the work to the solution
Calculate the equity capital ratio. If $2 million in bad loans were removed from the bank’s assets, show how the equity capital ratio would change.
You are given the following data for a company: Cost of debt = 8%, cost of retained earnings = 12%, cost of new common equity = 14%, tax rate = 35% and retained earnings = $1000. The firms target capital structure is 40% debt and 60% common equity.
What additional risks will the company face as a result of the proposed international sales? b. What happens to the company's profits if the U.S. dollar strengthens? What if the U.S. dollar weakens?
Calculate the NPV and IRR for the project from the standpoint of the parent company. What are your recommendations for the proposal?
A stock price is currently $100. Over each of the next two six-month periods it is expected to go up by 13% or down by 7%. The risk-free interest rate is 6%. What is the risk-neutral probability that the stock price will increase each period?
You are analyzing Jillian’s Jewelry (JJ) stock for a possible purchase. JJ just paid a dividend of $3.25 yesterday. You expect the dividend to grow at the rate of 5% per year for the next 3 years, if you buy the stock; What dividends do you expect fo..
Nu-platinum is a highly successful mining company. The company just paid a dividend on the stock of $0.60. Business has been growing well over the past few years and is expected to do so at 25% for the next 3 years. If the required return is 20% what..
Municipal bonds come in two general classifications: Revenue Bonds and General Obligation Bonds. What do these classifications mean and which of these municipal securities might you prefer? Why?
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. If the yield to maturity is 8.1 percent, what is the current price of the bond?
The world's largest carpet maker has just completed a feasibility study of what to do with the 16,000 tons of overruns, rejects, and remnants it produces every year. Company engineers have determined that the waste-burning plant will be environmental..
Assume that the average firm in your company's industry is expected to grow at a constant rate of 5% and that its dividend yield is 7%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&..
JJ Industries will pay a regular dividend of $2.40 per share for each of the next four years. At the end of four years, the company will also pay out a liquidating dividend. If the discount rate is 10 percent, and the current share price is $60, what..
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