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Life Cycle Costing----
Your favorite uncle Vito Corleone considers updating the heating system in his small getaway house. After an initial investigation, he is faced with two options:
Option 1 is to get a baseboard heating system and window air conditioners. The purchase and installation costs are $1,500. The residual value equals to 10% of the initial cost. Annual electricity consumption is 15,000 kWh. Annual maintenance costs equal to $50.
Option 2 is a heat pump that costs $2,200 to purchase and install. The residual value equals to 10% of the initial cost. The annual maintenance cost is $100. Annual electricity consumption is 10,250 kWh. Both systems are expected to last for 15 years. Assume that the discount rate is 2.4% and all future costs are paid at the end of the year. Assume the current price of electricity to be $0.10 per kWh. Which heating system should Mr. Corleone select based on LCC considerations?
Graham Bell has just retired after 30 years with the telephone company. His total pension funds have an accumulated value of $400,000, and his life expectancy is 16 more years. His pension fund manager assumes he can earn a 10 percent return on his a..
A start-up firm looking for external funding without giving up control of the firm would use which of the following? Corporate equity. Common equity. Preferred equity.
What other instrument is the same as a 5-year zero-cost collar where the strike price of the cap equals the strike price of the floor? What does the common strike price equal?
Analyse the value of Caraway's equity if it pays out a $200,000 cash dividend today and plans to pay a $1.2 million liquidating dividend at the end of one year.
TransAtlantic Petroleum Corp. plans to seek two additional production licenses from the Romanian government.
You are considering two independent projects with the same discount rate of 11 percent. Project A costs $284,700 and has cash flows of $75,900, $106,400, and $159,800 for Years 1 to 3, respectively. Project B costs $115,000, and has a cash flow of $5..
Is it possible to trade foreign exchange in the futures market? How does such trading differ from the forward market?
Potter & Lopez Inc. just sold a bond with 50 warrants attached. The bonds have a 25-year maturity and an annual coupon of 13%, and they were issued at their $1,000 par value. The current yield on similar straight bonds is 16%. What is the implied val..
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.43 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $1,990,000 in annual sales, ..
Suppose a firm in planning to invest $ 1,000,000 to invest in a risk free asset and a risky asset A. Assume that µf = 0.05, µA = 0.10 and ?A = 0.17. The company has capital reserves that could cover $ 100, 000 but no more and would like as a result t..
We are evaluating a project that costs $1,180,000, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 88,100 units per year. Suppose the projections g..
Stock X has an expected return of 10% and a standard deviation of 30%. Calculate the expected return of the portfolio. Calculate the beta of the portfolio.
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