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A firm is evaluating the riskiness of two capital budgeting projects. The following table summarizes the NPV and associated probabilities for various outcomes of the two projects Net Present Value Probability Project A Project B 0.25 -$5,000 $0 0.50 $4,000 $2,000 0.25 $10,000 $8,000 Using the above information, the projects can best be characterized relative to one another by the statement a. Project A is more risky than Project B b. Project B is more risky than Project A c. Since Project A has a higher expected NVP, it should be chosen d. Since Project B has a higher standard deviation, it is more risky and should not be chosen
Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $200,000, has a four-year life, and requires $65,000 in pretax annual operating costs. Calculate the NPV for both conveyor belt sys..
Bonnie’s Bee Farm Inc. just had their annual board of directors meeting, where they decided they plan to start paying dividends in three years (at time 3). The first dividend will be $1.00. After that, they plan to increase the dividend by $.25 in ea..
Make a list of 10 products or services that you buy on a weekly or monthly basis and the companies that sell them. Offer your initial views on whether each company would be a good place to invest money?
Modern Federal Bank is setting up a brand new branch. The cost of the project will be $1.2 million. The branch will create additional cash flows of $235,000; $412,300; $665,000, and $875,000 in years 1-4 respectively. The firm’s cost of capital is 12..
How could Global use options to hedge this risk? Which type of options should be used-puts or calls? Set up a hedge using the futures market for silver that will protect Global against increases in the price of silver over the coming 6 months.
Sarah purchased a stock one year ago at a price of $32 a share. In the past year, she has received four quarterly dividends of $0.75 each. Today she sold the stock for $38 a share. Her capital gain per share is
Blooper Industries must replace its magnesium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $12 million. The system will last 3 years. Do-It-Right sells a sturdier but more expensive system for $18 millio..
A financial analyst tells you that investing in stocks will allow you to double your money in 7 years. What annual rate of return is the analyst assuming you can earn?
Observe the sales-to-net property, plant, and equipment ratios for the same year for American Airlines (1.258), Oracle Corporation (10.338), Alcan, Inc. an aluminum manufacturer (1.907), and Yahoo, Inc. (5.834). Respond to the following: What does th..
Clay Harden borrowed $25,000 from a bank at an interest rate of 9% compounded monthly. The loan will be repaid in 36 equal monthly installments over 3years. Immediately after his 20th payment, Clay desires to pay the remainder of the loan in a single..
Future value of an annuity Your client is 20 years old; and she wants to begin saving for retirement, with the first payment to come one year from now. She can save $8,000 per year; and you advise her to invest it in the stock market, which you expec..
Ward Corp. is expected to have an EBIT of $2,350,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $174,000, $103,000, and $124,000, respectively. What is the price per share of the company's st..
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