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A firm has a $100 million capital budget. It is considering two project, each costing $100 million. Project A has an IRR of 20%; has an NPV of $9 million; and will be terminated after 1 year at a profit of $20 million, resulting in an immediate increase in EPS. Project B, which cannot be postponed, has an IRR of 30% and an NPV of $50 million. However, the firm's short-run EPS will be reduced if it accepts Project B because no revenues will be generated for several years.
Should the short-run effects on EPS influence the choice between the two projects?
How might situations like this influence a firm's decision to use payback?
What do you mean by horizontal and vertical analysis of financial statements? Discuss the categories of Ratios with the help of suitable example. Explain the concept of working capital. Discuss the working capital management strategies. Elaborate Rev..
Apocalyptica Corporation is expected to pay the following dividends over the next four years: $6.20, $17.20, $22.20, and $4.00. Afterwards, the company pledges to maintain a constant 5.50 percent growth rate in dividends, forever. Required: If the re..
A company’s bonds have a par value of $1,000 par, 7.8% coupon rate and 30-year maturity. The bonds currently sell for $1,107.20 and pay coupon semi-annually. What is the bonds' yield to maturity? A Company's last dividend was $1.35. The dividend grow..
You are evaluating a project that costs $840,000, has seven-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year. Price per unit is $40, vari..
Which of the following is the main cost of the operation of commercial banks?
Suppose a company has next year earnings of 100k, ROE 10%, and discount rate of 20%. What is the optimal payout ratio? What is the value destruction if the managers payout 50% of earnings?
Y3K, Inc., has sales of $6,309, total assets of $2,925, and a debt–equity ratio of 1.60. If its return on equity is 11 percent, what is its net income?
What are some indications that investors are risk averse? How would you as a portfolio manager support these investors? What kind of recommendations would you make? What would you recommend as a portfolio manager to reduce the risk for a risk adverse..
What are some good in depth questions to ask commercial bank business loans. officer (guest speaker) about acquiring a commercial loan?
For any two – but no more – of the bond features below, explain whether their presence in a bond contract would make the bonds more attractive or less attractive as an investment relative to bonds that lack the feature but are otherwise identical.
Time value of money and the lottery. A friend of yours by the name of Pam has asked you for financial advice. She recently won a state lottery and was asked by the lottery officials to choose between the following payout options:
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,830,000 and will last for 5 years. Variable costs are 37 percent of sales, and fixed costs are $152,000 per year. Machine B costs $4,440,..
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