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"Your company is considering investing in a country that usually has manageable inflation, but where there is a small probability of high annual inflation (more than 20%). If the company invests in the country, it will spend $1409 immediately, and the investment will last 4 years. The net cash flow in ACTUAL dollars from year 1 through year 4 follows a beta distribution with alpha = 1, beta = 1, A = 496, and B = 621. (When alpha = 1 and beta = 1 in a beta distribution, the distribution is identical to a uniform distribution.) Each year's cash flow follows the same distribution and is independent of the other years. (In other words, you need 4 beta random variables, one for each year.) The general inflation rate is also uncertain. The inflation rate follows a lognormal distribution, where the 50th %ile = 0.04 and the 0.9th %ile = 0.12 where the inflation rate is expressed as a decimal (not as a percentage). Assume the inflation rate remains the same in each year. Use SIPmath with 100,000 trials to calculate average or expected net present worth of the investment. The company's INFLATION-FREE MARR is 15%."
Summerdahl Resorts' common stock is currently trading at $30.00 per share. The stock is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75), and the dividend is expected to grow at a constant rate of 5% a year. What is the..
A company that produces cereals will need to buy corn from the market in 3 months. Propose one financial instrument and the position required (long or short) with which the company can protect from a possible increase in the price of corn.
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Stock R has a beta of 1.4, Stock S has a beta of 0.75, the expected rate of return on an average stock is 13%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exc..
Managers may underestimate a project’s IRR and NPV so that they can be certain that they achieve their targets for bonuses. The use of Accelerated Depreciation methods (instead of Straight-Line) results in higher operating cash flows in a projects ea..
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You have purchased a put option on Pfizer common stock. The option has an exercise price of $40 and Pfizer’s stock currently trades at $42. The option premium is $0.70 per contract. What is your net profit on the option if Pfizer’s stock price does n..
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