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A project has a cost of $50 million. The quality of the project is uncertain. There is a 50% chance that it is a good project and a 50% chance it is a bad project. If the project is good, the cash flow will be $10 million per year for five years. If the project is bad, the cash flow will be $5 million per year for five years. (The first cash flow from the project will occur one year from today.) You will learn whether the project is good or bad, immediately after you invest in it, but not before. The appropriate discount rate for the project is 5%. Assume you cannot cancel the project once you invest. What is the NPV of the project?
A pension fund manager is considering three funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money fund that yields a sure rate of 3%. The probability distributions of the risky..
You’ve just purchased your first home for $360,000! Your 30 year mortgage is $300,000. Your annual mortgage payments are $24,000. What interest rate is the bank charging you? If instead you had the choice of making monthly payments of $2,000 for 30 y..
The banking market in Athens, Ohio, currently has four banks with market shares of 60 percent, 20 percent, 15 percent and 5 percent. The two smallest banks have proposed merging. Under the standard merger guidelines of the Federal Reserve and the Jus..
How does the Statute of Limitations affect income tax obligations? How does the Bankruptcy Code affect income tax obligations?
Blair & Rosen, Inc. (B&R), is a brokerage firm that specializes in investment portfolios designed to meet the specific risk tolerances of it clients. A client who contacted B&R this past week has a maximum of $50,000 to invest. Formulate this program..
Wooten Co. has a current stock price of $33.35 and is expected to pay a dividend of $2.03 at the end of next year. the company's growth rate is expected to remain constant at 9.4%. If floatation cost represent 5.% of funds raised, what is the floatio..
Company Z's stock trades at $45 a share. The company is contemplating a 3-for-2 stock split. Currently, the company has EPS of $3.00, DPS of $0.50, and 20 million shares of stock outstanding. Assuming that the stock split will have no effect on the t..
To get the money for this payment, you will make 5 equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 8% with quarterly compounding.
Jamie Lee and Ross are estimating that they will be putting $40,000 from their savings account toward a down payment on their home purchase. Using the traditional financial guidelines suggestion of "two and a half times your salary plus your down pay..
Dennis wants to determine if the discount rate really makes any difference in the net present value of a project. He feels that if a project is acceptable on one rate of return, it will be acceptable at all rates of return. To explain why his thinkin..
What are the key provisions of the ECOA? Why was such legislation necessary?
A homeowner is looking to buy a home in Marvin Gardens. The most he can afford to pay in total is $1,800 per month. Yearly property taxes will be about $3,000 (escrowed monthly) and insurance is $110 per month. There are no other costs. If mortgage r..
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