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Problem - Determine the value of the option for the Bayer Company by delaying its investment for one year. Consider the value of the option is the difference between traditional present value analysis and real option analysis. The initial investment is for $700,000, but the investment will not be made until next year. The investment is being delayed so that Bayer's management can better determine the market for its product. There are two alternatives for sales in the next year of $1,000,000 or $800,000. Each sales level has an occurrence probability of 50%. The cost of capital for Bayer is 8%. If traditional present value analysis shows that the net present value of the project is $75,000, what is the value of the option (the ability to wait one year before executing or abandoning the project)?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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