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Tesar Chemicals 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 NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost.
WACC: 7.50%Year 0 1 2 3 4CFS -$1,100 $550 $600 $100 $100CFL -$2,700 $650 $725 $800 $1,400
a. $138.10b. $149.21c. $160.31d. $171.42e. $182.52
Assume stock returns can be explained by a 2 factor model. The firm-specific risks for all stocks are independent. The following table shows the data for two diversified portfolios:
Mandesa, Inc., has current liabilities of $8 million, current ratio of 2 times, inventory turnover of 12 times, average collection period of 30 days, and credit sales of $64 million.
Suppose you are a hard-working analyst in the office of financial operations for a manufacturing firm that produces a single product. You have developed the cost structure information for this corporation.
Is the agreement between the company and its investment banker an example of a negotiated or a best-efforts deal? Why? Which is riskier to the company? Why?
Of Sharpe's sales 10 percent is for cash, another 60% is collected in the month following sales, and 30% is collected in the second month following sales.
Develop a plan that will generate an adequate amount of money to retire at age 55 (if you are currently in your early twenties. If you are older, then you may provide an appropriate retirement age). Complete the analysis out to age 95 to ensure ..
If the economy booms, RTF, Inc. stock is expected to return 11 percent. If the economy goes into a recessionary period, then RTF is expected to only return 5 percent.
Give Preparation of common size statement for financial analysis and what is causing this drop in net income
In keeping with his reputation, he requires that the first payment be paid today. He also charges you 2 percent interest per month. How much money are you borrowing?
c. What must the rating of the bonds be for them to sell at par?d. Suppose that when the bonds are issued, the price of each bond is $959.54. What is the likely rating of the bonds? Are they junk bonds?
Describe how moral hazard and adverse selection materialized during the financial failure of A.I.G
A rich relative has bequeathed you a payment of $1,000 one year from now. Each year after that, you will receive a payment on the anniversary of the last payment that is 8% larger than the previous payment.
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