Using npv method and a constant discount rate

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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.

Reference no: EM13302395

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