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Company A is a public corporation specializing in the production of smart phones. Currently, Company A is evaluating a project to produce a next-generation smart phone. The management of Company A knows that Company B, a newcomer to the industry, is also planning to introduce a next-generation smart phone. In the recent past, Company A has applied a cost of capital of 12% in valuing smart phone projects. However, the CEO objects to using the same cost of capital for the new smart phone project, saying, "This time, we are facing additional risk. If Company B's new smart phone turns out to be technologically superior to ours, then our cash flow will be $10 million lower than our projections. To account for the additional risk in cash flows, we should use a higher discount rate than we normally use." Do you agree with the CEO? Please provide the rationale behind your answer.
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.6%.Bond C pays a 10% annual coupon, while Bond Z is a zero coupon bond.
Robert, age 64, is a senior engineer working for a Crown corporation and has declared that he has a high risk tolerance. He has taken up the environmental cause
Suppose a bank offers to lend you $10,000 for 1 year on a loan contract that calls for you to make interest payments of $320.00 at the end of each quarter and then pay off the principal amount at the end of the year. What is the effective annual r..
If interest will increase by 2%, what is the financial result for the bank?
The investment will help generate additional revenue of $250,000.00 per year with a cost of $220,000.00 before depreciation. The company is in a 40% tax bracket. The cost for capital is 10%.
The term structure is flat, and all spot rates are 3%. What is the modified duration of your portfolio?
(Monthly compounding) If you bought a $1,000 face value CD which matured in nine months, and which was advertised as paying 9% annual interest, compounded monthly, how much would you receive if you cashed in your CD at maturity?
What are the advantages of a currency options contract as a hedging tool compared with the forward contract?
How does time to maturity and the coupon rate affect interest rate risk?
A stock has an expected return of 11.5 percent, its beta is 1.25, and the risk-free rate is 4.5 percent. What must the expected return on the market be?
If the gains are priced in and you bought stocks on the basis of the information contained in this article, would you be likely to earn above-average returns on your investment?
Molteni Motors Inc. recently reported $3.25 million of net income. Its EBIT was $5.75 million, and its tax rate was 35%. What was its interest expense?
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