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You have invested in a business that proudly reports that it is profitable. Your investment of $ 4,600 has produced a profit of $ 291. The managers think that if you leave your $ 4,600 invested with them, they should be able to generate $ 291 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 8.4 %. Should you remain invested in this firm?
1. The expected return of your investment is nothing ____%
2. If projects that are similar in horizon and risk are offering an expected return of 8.4 %, then this business is not is earning your opportunity cost of capital and you should remain invested invest elsewhere.
The alternative to investing in the new production line is to overhaul the existing line, which currently has both a book value and a salvage value of $0.
what is the present value of your winnings?
You have estimated the optimal debt to capital ratio for RAD, based upon minimizing the cost of capital, to be 50%.
For a company whose target capital structure calls for 50% debt and 50% common equity, which of the following statements is CORRECT? The cost of retained earnings typically exceeds the cost of new common stock.
Bill’s Bakery expects earnings per share of $2.18 next year. Current book value is $3.9 per share. The appropriate discount rate for Bill’s Bakery is 13 percent. Calculate the share price for Bill’s Bakery if earnings grow at 4 percent forever.
Three general unsecured creditors are owed $45,000 as follows: Easy Does It Rentals, $15,000; Make Me a Deal Furniture, $5,000; and TV’s r Us, $25,000. After all other creditors are paid, the amount left for distribution to general unsecured creditor..
What is the Macaulay duration of a 7.2 percent coupon bond with five years to maturity and a current price of $937.80? What is the modified duration?
A bond matures in 25 years, but is callable in 11 years at 123. The call premium decreases by 2 percent of par per year. If the bond is called in 16 years, what percent of face value will you receive? (
Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $110 and pays an annual dividend of $4.40 per share.? Similar-risk preferred stocks are currently earning an annual rate of return of..
How long on average does it take the firm to sell its inventory?
Carrie Fisher is currently leasing the space of her walk-in Botox clinic, Age Wars, at $2500 per month. You find out that Carrie estimated the salvage value by assuming 8% percent annual price appreciation from the current appraised value. In other w..
Your firm is considering purchasing an old office building with an estimated remaining service life of 25 years. Recently, the tenants signed long-term leases with fixed rental rates for the first 5 years; thus, the current rental income of $150,000 ..
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