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You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now.
a) What is the NPV of the opportunity if the interest rate is 6% per year? What is the IRR? Should you take the opportunity?
b) What is the NPV of the opportunity if the interest rate is 2% per year? What is the IRR? Should you take it now?
c) What important lesson do we learn from this problem, when you compare the key assumptions and results in (A) and (B) above? Which finance principle(s) do these results illustrate?
What's the change in the firm's EPS from this change in capital structure.
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If the required rate of return for this stock is 10.91% , what is the value of a share of common stock today?
Compare the calculated present values, and discuss them in light of the fact that the undiscounted total cash flows amount to $150,000 in each case.
The real risk-free rate of interest (r*) is 3 percent. Inflation is expected to be 4 percent this coming year, jump to 5 percent next year, and increase to 6 percent the year after. According to the expectations theory, what should be the interest ra..
Find the future values of these ordinary annuities. Compounding occurs once a year. Round your answers to the nearest cent. How long will it take $400 to double if it earns the following rates? Compounding occurs once a year. Round each answer to two..
An investment has an installed cost of $571,382. The cash flows over the four-year life of the investment are projected to be $200,584, $244,318, $192,674, and $160,313. If the discount rate is zero, what is the NPV? At what discount rate is the NPV ..
Hart Enterprises recently paid a dividend, D0, of $2.50. What is the firm's horizon, or continuing, value?
Should Racquets Plus, with a hurdle rate of 16%, buy a $22,036 piece of equipment that will reduce annual labor costs by $6,730 and will last for 5 years with no salvage value? Why or why not?
Will the bonds be selling at a premium or a discount with respect to their $1000 face value? Why? What is the price of the bonds?
Your firm has an average collection period of 28 days. Current practice is to factor all receivables immediately at a discount of 1.8 percent. What is the effective cost of borrowing in this case?
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