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Suppose a friend is just about to graduate from college and is considering a career in law. In order to make her decision, she must determine the present values of income streams from her options and pursue the income stream with the highest net present value (NPV). She assumes that her cost to borrow is 6% and she will use a discount rate of 2 % for her initial calculations. Option 1: If she does not go to law school and immediately goes to work, she believes she can earn a salary of $42,000 per year to start. She expects that she will receive incremental increases in her salary of 10% after her first 5 years of employment and then incremental increases averaging 5% every 5 years to retirement. She expects to have a career of 40 years in the work force. Option 2: If she goes to law school, she will spend 2 years studying full time and pay tuition of $25,000 per year. She will borrow the entire cost of her law degree and pay it back upon graduation in one lump sum. She will work part time during law school and expects to earn $10,000 per year. When she graduates, she will be able to earn a starting salary of $52,000 per year. She expects to receive incremental increases in her salary of 4% every 5 years to retirement. She anticipates a 35 year career in law. What decision should she make? Would your advice be the same if the cost to borrow were 10% and she used a 5% discount rate? Explain your conclusions and how you arrived at them (show your work).
The standard Devation of market returns is 25% and the standard deviation of Stock X returns is 30%. The correlation Coefficient between the market is Stock X is .70. What is the beta of Stock X?
Becker Financial recently completed a 7-for-2 stock split. Prior to the split, its stock sold for $90 per share. If the total market value was unchanged by the split, what was the price of the stock following the split?
A chemical plant is considering installing a new water purification system which costs $21500.
Select a portfolio of common stocks in five companies whose stock is traded on the New York Stock Exchange (NYSE). Base your selection of stocks on your own personal willingness to take risks. Look up the beta of each company. Using equal weights, co..
A company sells car batteries for $80 each and expects to sell 200,000 units. The variable costs is $28 and fixed costs is $1,000,000. Estimate the break-even point.
Opportunity costs. What is the IRR of an investment that cost $150,000 and has OCF of $30,000 dollars a year for 2 years and $48,000 for the next three years?
How much will the investor receive at maturity? A) $30,000 B) $60,000 C) $1800 D) $20,000
What financial reports does your department use to monitor and control revenues and expenses?
If you own 100 shares of Honeybear stock, how many call options must you buy (sell)? - If you own five put option contracts, how many shares of stock do you need?
To achieve diversification, what other course of action could Mike have taken that would not involve buying individual stocks in a variety of companies?
The strategy whereby the United States created a thick institutional structure after World War II was known as: détente, or easing of tension. tying hands, or self-binding. containment, or balancing. balance of terror, or mutually assured destruction..
Johnson Inc has 2,000 bonds and 300,000 shares of common stock outstanding. The common stock has a beta of 1.3 and trades at $18 per share . The firm is in 40% tax bracket. The market risk premium is 6% and yield on 10 year U.S. treasuries is 4%. The..
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