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Your firm has been hired to develop new software for the university's class registration system. Under the contract, you will receive $501,000 as an upfront payment. You expect the development costs to be $451,000 per year for the next 33 years. Once the new system is in place, you will receive a final payment of $892,000 from the university 44 years from now.
a. What are the IRRs of this opportunity? (Hint: Build an Excel model which tests the NPV at 1% intervals from 1% to 40%. Then zero in on the rates at which the NPV changes signs.)
b. If your cost of capital is 10%, is the opportunity attractive?
Suppose you are able to renegotiate the terms of the contract so that your final payment in year 44 will be $1.2 million.
c. What is the IRR of the opportunity now?
d. Is it attractive at the new terms?
Hodgkiss Enterprises has gathered projected cash flows for two projects. At what interest rate would the company be indifferent between the two projects? Which project is better if the required return is 10.5 percent?
Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years af..
What concerns might a loan officer have when loaning funds to a sole proprietorship that he or she might not have when loaning funds to a corporation?
Determine the project’s annual net cash flows.
If your cost of capital is 10 percent and your firm faces a 34 percent tax rate, what will the cash flows for this project be?
Compute the break even exchange rate. Compute the profit/loss on the option (per Euro) for the following exchange rates:
A company is deciding on investing in one of two mutually exclusive pieces of equipment: Equipment A and Equipment B. If the firm expects a 8% per year return on investment, which of the following alternatives should they choose. Explain. Use future ..
Wrecks Inc. has $20 million in earnings, pays $2.75 million in interest to bondholders, and $1.80 million in dividends to preferred stockholders. a. What are the common stockholders’ residual claims to earnings? b. What are the common stockholders’ l..
The DJIA is often criticized as not being representative of the economy given that it comprises of stocks of only 30, large, mature, and less volatile companies. It has been observed that the DJIA performance often does not mimic that of the NYSE. Wh..
Plethora Corporation's stock is selling for $29.45 in the market. The stick's required rate of return is 15.27%. The previous dividend was $3 (i.e. D0=$3) and dividends are expected to grow at a constant rate. What is the growth rate for this stock?
which case the borrower pledges assets such as real estate, securities, equipment, inventories, or accounts receivable, as collateral for the loan?
Which of the following is true of risk premium?
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