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You are considering making a movie. The movie is expected to cost $10 million upfront and take a year to make. After that, it is expected to make $5 million when it is released in one year and $2 million per year for the following four years. What is the payback period of this investment? If you require a payback period of two years, will you make the movie? Does the movie have positive NPV if the cost of capital is 10%? What is the discounted payback period?
The core business of TVL Corporation is undergoing a difficult period. TVL bonds have been downgraded to CCC in order to reflect the higher probability of default the company now faces. TVL is considering a very promising (high NPV, low risk) capital..
If the real interest rate in the economy is 3% and the expected inflation is 2% per year over a five year period, assuming the maturity risk premium is 0, what is the interest rate that the expectations theory would predict for a five year Treasury n..
A company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (rRF) is 5% and the market risk pre..
Apple Computer Incorporated is expected to grow at an exceptionally high rate over the next 3 years due to various new project launches. Computer paid a $2.12 dividend yesterday (D0=$2.12) and the stock is valued according to a required rate of retur..
The 2013 balance sheet of Maria's Tennis Shop, Inc., showed long-term debt of $6.3 million, and the 2014 balance sheet showed long-term debt of $6.5 million. The 2014 income statement showed an interest expense of $220,000. What was the firm’s 2014 o..
How much value will this new equipment create for the firm? At what discount rate will this project break even?
Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. The tax rate is 35%. If the flotation cost is 5% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shiel..
Calculate the value of a bond that matures in 12 years and has $1,000 par value. The annual coupon interest rate is 9 percent and the market's required yield to maturity on a comparable-risk bond is 12 percent. Round to the nearest cent
You have been living in the house you bought 10 years ago for 100,000€. At that time, you took out a loan for 80% of the house at a fixed rate 15-year loan at an annual stated rate of 6%. which should be paid immediately. Should you refinance the rem..
Create SML graph that needs to be computer generated either through excel or any other program, reflecting a risk-free rate of 2% and the market return 7%. C. Required rate of return needs to be on the Y axis and the beta needs to be on the X axis
Chang Corp. has $375,000 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $595,000, and its net income was $25,000. Stockholders recently voted in a new management team that has promised to lower costs a..
Consider a 3.25% TIPS with an issue CPI reference of 184.80. At the beginning of this year, the CPI was 191.90 and was at 202.00 at the end of the year. What was the capital gain of the TIPS in percentage terms?
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