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What is the net present value of this project

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Q1. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which option would you choose?

Q2. Consider a bond which pays 6% semiannually and has 20 years to maturity. The market requires an interest rate of 4% on bonds of this risk. What is this bond's price?

Q3. Angelina's made two announcements concerning their common stock today. First, the company announced that their NEXT annual dividend has been set at $2.16 a share. Secondly, the company announced that all future dividends will increase by 4% annually. What is the maximum amount you should pay to purchase a share of Angelina's stock if your goal is to earn a 10% rate of return?

Q4. A project will produce cash inflows of $1,200 a year for four years and $7,500 in year 5. The project initially costs $10,000 to get started. What is the net present value of this project if the required rate of return is 13.75 percent?

Q5. The Liberty Co. is considering two projects. Project A consists of building a wholesale book outlet on lot #169 of the Englewood Retail Center. Project B consists of building a sit-down restaurant on lot #169 of the Englewood Retail Center. Which method(s) would be most appropriate for evaluation of these investment opportunities.

Q6. Suppose the expected return on the market portfolio of large stocks is 16%. Assume that the historical risk premium on large stocks is 7%. Given these assumptions, what is the current risk-free rate?

Reference no: EM132979373

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