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Question: A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below: Years 0 1 2 3 4 S -1,100 900 350 50 10 L -1,100 0 300 500 850 The company's cost of capital is 10 percent, and it can get an unlimited amount of capital at that cost.
a. Calculate each project's NPV and IRR. Which project would you choose based on each method?
b. Show the NPV profile of the two projects and calculate the crossover rate. Which method gives you the correct answer, NPV or IRR or both? Explain.
c. Calculate each project's MIRR.
Which project would you choose? Explain why MIRR is better than IRR.
d. Use a data table to do a sensitivity analysis to see how cost of capital affects the IRR and MIRR of the two projects. Explain the intuition.
To discourage short-term investing in its fund, the fund now charges a 5% upfront load and a 2% back-end load. The same investor decides to put $50,000 back into the fund. Calculate the new number of shares outstanding. Assume the fund manager buys b..
LSU plans to wait until the expiration date before deciding whether to exercise the options. Of course, LSU will exercise the options at that time only if it is feasible to do so. In the following table, fill in the net profit (or loss) per unit to L..
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Determine the profile of the investor for which this company may be a fit, relative to that potential investor's investment strategy. Provide support for your rationale.
A company enters into a long futures contract to buy 1,000 units of a commodity for $60 per unit. The initial margin is $6,000 and the maintenance margin is $4,000. What futures price will allow $2,000 to be withdrawn from the margin account?
Jackson Peterson has launched a firm selling swimming pool supplies. Most of his clients are local swimming pool builders and smaller firms that serve.
An investor has a $10,000 portfolio that allocated as given: short 100 shares of stock A, purchase 250 shares of B and 200 shares of 3. Any additional funds are lent at risk free rate of 0.04.
A stock had returns of 16 percent, 4 percent, 8 percent, 14 percent, -9 percent, and -5 percent over the past six years. What is the geometric average return for this time period?
A construction company has an estimated profit, before taxes, of $256,452 for the year. Included in the company’s costs is $25,622 for meals and entertainment. Determine the taxable income for the company.
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a bond yielded a real rate of return of 3.87 percent for a time period when the inflation rate was 3.75 percent. what
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