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1) The cost of a project is $500,000 and the present value of the net cash inflows is $625,000. What is the increase in value of the firm as a result of accepting the project.
2) A project has an initial outlay of $100,000 initially then a cash inflow of $133,000 at third year (year 1 and year 2 has no cash inflow). At a discount rate of 10% what is the NPV?
3) You are choosing between mutually exclusive projects A and B. Project A has a NPV of $10,000 and an IRR of 15%. Project B has a NPV of $6,500 and an IRR of 23%. Which project should be selected?
4) When projecting cash flows into the future and calculating net present values(NPV), the manager should NOT adjust the cash flows for inflation. What do you think and why?
5) Is there ever a valid reason for ignoring the results of financial capital budgeting analysis? Explain.
The treasurer of a large corporation wants to invest $25 million in excess short-term cash in a particular money market investment. However, the treasurer wants to know the money market yield on this instrument to make it comparable to the T-bills an..
Moerdyk Corporation's bonds have a 15-year maturity, a 7.25% semiannual coupon, and a par value of $1,000. The going interest rate (rd) is 6.20%, based on semiannual compounding. What is the bond’s price? High Inc's bonds currently sell for $1,275 an..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next eleven years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a dividend of $15.00 per share 12 yea..
What is the duration of a five-year zero-coupon bond?
An insurance company issued a $109 million one-year, zero-coupon note at 9 percent add-on annual interest (paying one coupon at the end of the year) and used the proceeds plus $29 million in equity to fund a $138 million face value, two-year commerci..
When evaluating projects using NPV approach ____
Consider the numerical example that we used to demonstrate the thinking of Adam Smith.- How much can you profit from your first small amount of arbitrage?
In a typical month, the Murray Corporation receives 70 checks totaling $136,000. These are delayed five days on average. What is the average daily float? Assume 30 days in a month.
Michaels Ltd expects earnings before interest and taxes to be $40 000 for this period. Assuming an ordinary tax rate of 30%, calculate the firm’s earnings after taxes and earnings available for ordinary shareholders (earnings after taxes and preferen..
Morning Star has credit sales of $914,900, cost of goods sold of $764,800, average accounts receivable of $121,300, and average accounts payable $127,600. On average how long does it take for the firm's credit customers to pay for their purchases?
Lion Equity paid an annual dividend of $3.25 per share last month, and it is anticipated that future dividends will increase by 4% annually. As a shareholder, if you require a 11% return on your investment in Lion Equity, how much are you willing pay..
A group of retired college professors has decided to form a small manufacturing company. The company will produce a full line of traditional office furniture. Two financing plans have been proposed by the investors. find the EBIT indiffernece level a..
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