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Your colleague has asked you to consider and investment of $250,000 to her KLW compact fitness equipment business that will build and sell compact fitness equipment specialized for small apartments and condos in Vancouver. These items would fold and fit into bookcases and wall doors. Funds would be used to complete the prototype, obtain patents and set up manufacturing Terms of the proposal are that you would receive $50,000 at the end of each year in interest with the full $250,000 to be repaid at the end of a ten-year period. a. Assuming a 10% required rate of return, calculate the present value of cash flows and the net present value of the proposed investment. b. Based on this same interest rate assumption, calculate the cumulative cash flow of the proposed investment for each period in both nominal (without and discount rate – just add the cash flows) and present value terms. c. What is the payback period in both nominal and present-value terms? d. Can the present-value payback period ever be shorter than the nominal payback period?
A borrower has a 5% chance of default on a $100 loan; If default occurs, the bank gets $60 back in principal and no interest; The bank sets the rate on the loan expecting 6% (3% inflation + 3% real) What is the interest rate the bank charges this bor..
Bond X is a premium bond making annual payments. The bond has a coupon rate of 9 percent, a YTM of 7 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond has a coupon rate of 7 percent, a YTM of 9 percent..
Raphael Restaurant is considering the purchase of a $9,400 souffle maker. The maker has an economic life of 5 years and will be fully depreciated by the straight line method. The machine will produce 1,700 souffles per year, with each costing $2.50 t..
The specifications of a steel shaft are 4.65±0.15mm. The device sometimes fails when the shaft exceeds the specification. When failure occurs, repair or replacement is necessary at an average cost of $85.00. What is the loss coefficient k? What is th..
Suppose that a march call option to buy a share for $50 costs $2.50 and is held until march. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised?
What is the yield to maturity of a 9-year bond that pays a coupon rate of 20% per year, has a $1,000 par value, and is currently priced at $1,426? Assume annual interest payments.
Compare and contrast the commitments taken on by a futures contract seller versus a buyer of a put option. Compare and contrast the commitments taken on by a futures contract buyer versus a buyer of a call option.
ITE Valuation – Excel Valuations Introduction Recall William's assumptions: “With the right financing and the right acquisitions, under ideal circumstances, ITE could achieve $6 million in sales in five years, and $14 million in 10 years, with a targ..
Brad wants to know the future value at the end of 2 years of a $15,000 deposit made today into an account paying a nominal annual rate of 12%. Find the future rate of Brad’s deposit, assuming that interest is compounded annually. Find the future rate..
A credit default swap is essentially a
Nutech Corp. is expecting the following cash flows—$79,000, $112,000, $164,000, $84,000, and $242,000—over the next five years. If the company’s opportunity cost is 15 percent, what is the present value of these cash flows?
At time 0, the share price of a stock was $85. At that time, a call option on a share of stock with a strike price of $95 expiring 6 months later had a premium $2.00. Risk free interest is 4% annual effective. Determine the payoff and the profit on t..
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