What is the present value of option

Assignment Help Finance Basics
Reference no: EM132643619

You are the manager of a large corporation. You are asked to select between two different projects that will provide different revenue streams for the company. These are:

Option I: Receive revenue of $1,000,000 per year for six years from T=1 through T=6.

Option II: Receive revenue of $500,000 per year for the first five years (T=1 to T=5) and then a revenue of $1,000,000 per year for the next five years (T=6 to T=10).

a. What is the present value of each option if R=0.08? Which option would you choose?

b. What is the present value of each option if R=0.10? Which option would you choose?

c. What discount rate R will make the present value of both options equal? Hint: use Excel's Data - What If - Goal Seek analysis.

Reference no: EM132643619

Questions Cloud

Prepare contingency planning document : Assume that you have been hired by a small veterinary practice to help them prepare a contingency planning document.
Find what is the yield to maturity on the bonds : A 14.375% coupon interest rate that is payable semiannually. The bond is currently selling for $1,508.72. What is the yield to maturity on the bonds?
Find last interest payment date : A bond has a settlement date of 09/22/2020. The maturity date for the bond is February 15, 2042. What was the last interest payment date?
What are the balances for the Machine account : After the adjustments are recorded and posted at December 31, Year6, what are the balances for the Machine account and the Accumulated Depreciation account
What is the present value of option : You are the manager of a large corporation. You are asked to select between two different projects that will provide different revenue streams for the company.
Compute what is the payback period for the investment : Find What is the payback period for this investment? The investment will cost the firm $150,000 today, and the firm's cost of capital is 10%.
Focus on reinforcement : Skinner has suggested that it is best to focus on reinforcement and success rather than on punishing failure.
What do you do with the literature : During your research, you may find conflicting viewpoints on scholarly sources. For instance, you might have one author that asserts United States health care.
Comparative and absolute advantage in global markets : Explain and provide examples of the difference between comparative and absolute advantage in global markets.

Reviews

Write a Review

Finance Basics Questions & Answers

  What factors and measures should be considered in

how is materiality or immateriality related to the proper presentation of financial statements? what factors and

  The firms reported earnings are 300000 after the issuance

expected price. wolinsky corporation is considering a public issuance of its securities. the average pe ratio in the

  Javits amp sons common stock currently trades at 3000 a

javits amp sons common stock currently trades at 30.00 a share. it is expected to pay an annual dividend of 3.00 a

  Portfolio- buy a call and a put options on the same asset

Consider the following portfolio- buy a call and a put options on the same asset with the same strike price E. i) Derive and plot the payoff function for this portfolio. ii) Derive the final condition (time = expriry) and two boundary conditions (..

  What is the correlation coefficient

The variance of Stock A is .005, the variance of the market is .008 and the covariance between the two is .0026. What is the correlation coefficient?

  One share of this preferred stock

If your required rate of return is 11.90 percent, how much will you be willing to pay for one share of this preferred stock?

  Portfolio of stocks and bonds

Commodity can be used as a good hedge against inflation if being included in a portfolio of stocks and bonds. Explain

  How long will you wait from now

You expect to receive $32,000 at graduation in two years. You plan on investing it at 9.5 percent until you have $167,000. How long will you wait from now?

  Collection of a blood sample

When can a Vacutainer not be used for collection of a blood sample

  What are airs? how do they work?

What are AIRS? How do they work? Why is Banc One using them so extensively?

  Fair price per share

What is a fair price per share and how many additional shares must Benjamin sell to the angel? Because the stock will be sold directly to an investor, there is no spread; the other flotation costs are insignificant.

  Effective annual interest of rate

Mrs Felicia has a 10 year old niece, Melin. Melin is working towards saving for a N300 computer. Mrs Felicia wishes to support Melin but she also want to teach

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd