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1. The initial investment of a project is $110,000. The following are the estimated cash flows: Year Cash Flow 1 $30,000 2 40,000 3 20,000 4 40,000 5 50,000 Using NPV method and a constant discount rate of 12%, determine if the project is acceptable. 2. If a company issues a $1000 par value bond with a $90 coupon and a maturity date of 10 years and floatation cost are 2% of the par value of the bond, calculate the cost of this debt issue, assuming that the firm is subject to a 40% tax rate. 3. Using the Black-Scholes model, calculate the fair value of a call option having the following features: Price of stock $75 Exercise Price $70 N(d1) 0.68 N(d2) 0.75 Risk-free rate 5% Time to expiration 12 months 4. What do financial managers try to maximize, and what is their second objective? Be very specific and elaborate in your answer.
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