The maturity premium compensates the lender

Assignment Help Financial Management

Reference no: EM131940559

1. The maturity premium compensates the lender for:

a. the amount of time the borrower will be holding the lender's money.

b. the difficulty incurred by the lender in turning his receivable into cash.

c. the restrictions on the lender's ability to recall the loan and force the borrower to pay the debt.

d. the likelihood of having to sell the IOU at a discoun tin order to get his cash back early.

2. A company is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates the MIRR. If the decision is made by choosing the project with the higher IRR rather than the one with the higher MIRR, how much, if any, value will be forgone. In other words, what's the NPV of the chosen project versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. MIRR will have no effect on the value lost.

WACC = 9.00%

Year 0 1 2 3 4

CFS −$1,100 $550 $600 $100 $100

CFL −$2,750 $725 $725 $800 $1,400

a. 0

b. 79.56

c. 78.01

d. 73.38

e. 95.55

Reference no: EM131940559

Questions Cloud

Compute the warehouse depreciation : Use the straight-line method to compute the warehouse depreciation. Develop the project cash flow to determine.

Explanations for the sex chromosome types : Select the most likely explanations for the sex chromosome types:

Explore alternatives or options available : Choose a dietary supplement or ergogenic aid, evaluate it, and decide if it is appropriate using the following criteria:Why are you using it or doing it?

Review three dietary supplements : Review three dietary supplements you find at home or in the store. Describe what you find on the label in terms of content and claims.

The maturity premium compensates the lender : The maturity premium compensates the lender for:

Eating disorders on the health athletes : What are the symptoms that may suggest there is a problem? In particular, outline the female athlete triad and its signs and symptoms.

How you have personally been affected by nutrition myths : Describe how you have personally been affected by nutrition myths. What dietary practices have you put into place that may be harmful

Kind of investment in the stock market has efficient market : what part or kind of investment in the stock market has a very "efficient" market?

How you have personally been affected by nutrition myths : Describe how you have personally been affected by nutrition myths. What dietary practices have you put into place that may be harmful

User Account

All Pages