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Tropical Soft Drinks is evaluating a proposal to install solar panels on the roof of it's factory near San Juan. The panels will cost $175,000 per set. Depending on the price of electricity and the efficiency of the panels, the project will increase operating cash flows by either $50,000 per year or $75,000 per year. The useful life of the panels is 5 years. If early results indicate savings of $75,000 per year, four additional sets of panels will be installed immediately at the same cost with the same projected savings. The probability of either outcome is 50%. Use a discount rate of 10%.
What is the expected NPV of the project if the option to expand is considered?
a. $280,542
b. $355, 542
c. $546,545
d. $671,545
Brookfield Heavy Equipment is considering a project that will produce after tax cash of $40,000 per year for 5 years. The project will require an initial investment of $147,427.70. At what discount rate will the project reach break-even NPV?
a. 12%
b. 8%
c. 10%
d. 11.11%
Consider a Zerobond (i.e., a bond that pays no coupon payment, meaning that the coupon rate on the bond is 0%) with a par value of $1,000 that will mature exactly 12 years from today. The current YTM of this Zerobond is 5.2%. Two years ago the YTM of..
You need a 30-year fixed rate mortgage to buy a new home for $290,000. Your mortgage bank will lend you the money at a 5.85 percent APR for this 360-month loan. However, you can afford monthly payments of only $1,300, so you offer to pay off any rema..
Suppose that every time a fund manager trades stock, transaction costs such as commissions and bid–ask spreads amount to 1.9% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced b..
The terms of the sale were 4/9, net 36. What is the effective annual rate of interest?
Apple Corporation wants to issue bonds with a 9% coupon rate, a face value of $1,000, and 12 years to maturity. Apple estimates that the bonds will sell for $1,090 with issuing (floatation costs equal $15 per bond – this reflects an 8% before tax cos..
What effective annual rate results from daily compounding of 8%? Suppose that you have a mortgage on your house. You make monthly payments. Your bank quotes APR equal 8.5% per year. What is your effective annual rate?
The construction of a new runway at an airport will cost $30 million, to be paid with capital development bonds over a 20-year period. The runway is expected to decrease the average aircraft delay from 9 to 5 min. The average annual demand is expecte..
Atlantis Fisheries issues zero coupon bonds on the market at a price of $364 per bond. Each bond has a face value of $1,000 payable at maturity in 18 years. It is callable in 9 years at a call price of $490.
What are the conditions that affect the success or lack of success in cross border acquisitions by multinational corporations? Give an example
The new copier will allow FA to increase revenues by $2,000 each year but expenses will also increase by $500 each year. Account receivables will increase by $500 and account payables will increase by $800 if the copier is purchased.
The next dividend payment by Wyatt, Inc., will be $2.90 per share. The dividends are anticipated to maintain a growth rate of 4.75 percent, forever. If the stock currently sells for $49.40 per share, what is the required return?
Find the amount to which $500 will grow under each of these conditions: 12% compounded annually for 5 years. 12% compounded quarterly for 5 years.
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