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Suppose you are a regular subscriber to the Financial Times and are considering whether to renew your subscription for a single year or two years. If your cost of capital is 10%, purchasing a two-year subscription for $775 rather than a one-year subscription for $420 is an excellent opportunity, particularly if you expect the one-year subscription price to increase next year.
The owner of a farm just west of Oberlin has signed a contract to sell the farm one year from now for $1 million. However, the holder of the contract has come up with an offer to close the deal today for a price of $950,000. If the farmer's cost of capital is 10% a year, and the land would simply lie fallow at no cost to either party during the year, should the farmer sell now or wait a year?
Suppose the farmer in the previous question had the opportunity to work the land for the year if she doesn't sell now. Doing so allows her to increase her income at the end of the year by $150,000. Of course, this entails some out-of-pocket current expenses amounting to $85,000. Now what should the farmer do?
You are asked to estimate Blue Monster Corporation's after-tax cost of debt financing. It can issue 22 years to maturity bonds with a coupon rate of 11.97% paid annually, and par value of $1000. The bonds can be sold now at a price of $1184 each. Mar..
Incorporating Country Risk in Capital Budgeting. How could a country risk assessment be used to adjust a project’s required rate of return? How could such an assessment be used instead to adjust a project’s estimated cash flows?
A machine cost $70,200; it has an estimated residual value of $6,000 and an expected life of 300,000 units. What would be the depreciation in year three if 60,000 units were produced?
Based in Germany, and with manufacturing and assembly exclusively located in Germany, Porsche’s entire cost base is the euro or slovakian koruna (which is managed by the slovakian government to maintain stability against the euro). In the long run, w..
STF Corporation issued 15 year, par $1000 bonds 10 years ago at a coupon rate of 5%. The bonds make semi annual payments. If these bonds currently sell for 90% of par value, what is the Yield To Maturity (YTM)? Please show your work.
Traditionally, Granite Company has accepted a proposal only if the payback period is less than 50 percent of the asset's useful life. Peggy Casteel is the new accounting manager. Determine the payback period of the investment. Determine the net prese..
Pierce, an independent auditor, was engaged to audit the financial statements of Mayfair Construction Incorporated for the year ended December 31, 20X3. Mayfair's financial statements reflect a substantial amount of mobile construction equipment used..
Carla Lopez deposits $9070 a year into her retirement account. If these funds have an average earning of 7 percent over the 15 years until her retirement, what will be the value of her retirement account?
Is there a relationship between compensation and higher levels of employee performance? Please explain "yes" or "no" providing 3 reasons to support your position. How does organizational market position influence compensation philosophy?
A laptop costs $1,300 in the United States. The same laptop costs 930 British pounds. If purchasing power parity holds, what is the spot exchange rate between the British pound and the dollar? According to the spot rate calculated in (a)how many Brit..
Calculate the price of a 5-year, $1,000 par value bond that makes semiannual payments, has a coupon rate of 8 percent, and offers a yield to maturity of 7 percent. Recalculate the price assuming a 9 percent YTM. What is the general relationship that ..
One defect of the IRR method vs. the NPV is that the IRR does not take account of cash flows over a project’s full life. One defect of the IRR method vs. the NPV is that the IRR does not take account of the time value of money. One defect of the IRR ..
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