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Although you are a millionaire, keeping all your money in the market, you have managed to secure a great deal:
If you promise to go to school (which costs you a net disutility worth $10,000 today), then your even richer Uncle Vinny will buy you a Ferrari (expected to be worth $200,000), provided his business can afford it. He is an undertaker by profession, so his business will have the money if the stock market drops, but not if it increases.
For simplicity, assume that the stock market drops in 1 year out of every 4 years. When it does, it goes down by -10%; when it does not, it goes up by 18%.
(Write it out as four separate possible state outcomes to make your life simpler.)
The risk-free rate is 6%. What is your uncle's deal worth to you?
Truman Industries is considering an expansion. The necessary equipment would be purchased for $9 million, and the expansion would require an additional $1 million investment in net operating working capital. The tax rate is 40%. What is the initial i..
Limitations of ratio analysis include which of the following: It is difficult to compare conglomerate firms to an industry average. Seasonal fluctuations can cause changes in financial performance of firms throughout the year.
Assume the six-month Treasury spot rate is 1.6% APR, and the one-year rate is 2% APR, both compounded semiannually. What is the price of a one-year $1000 par Treasury bond with 2% coupons?
BioScience Inc. will pay a common stock dividend of $3.20 at the end of the year. The required return on common stock is 14%. The firm has a constant growth rate of 9%. Compute the current price of stock.
Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $240,000, has a four-year life, and requires $75,000 in pretax annual operating costs. Calculate the EAC for both conveyor belt sys..
Assume you are starting a new business involving the manufacture and sale of a new product. Raw materials costs are $45 per product. Direct labor costs are expected to be $32 per product. You expect to sell each product for $115.
Find the future value of today's $500 in 5 years under each of the following conditions. Find the present value of today's $10,000 in 5 years under each of the following conditions.
You decide to open an individual retirement account (IRA) at your local bank that pays 11%/year/year. At the end of each of the next 40 years, you will deposit $4,000 per year into the account (40 total deposits). 3 years after the last deposit, you ..
McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $900 per set and have a variable cost of $500 per set. The company has spent $159,000 for a marketing study that determined the company will sell 55,000 sets per year ..
The Purple Martin has annual sales of $887,400, total debt of $210,000, total equity of $465,000, and a net profit margin of 5%. What is its return on assets?
Unfortunately, the Capital Investment Committee refused to approve your recommendation (Problem 1) since you did not consider the uncertainty inherent in these types of investments. Normal distribution (mean of $10,000, standard deviation of $3,000) ..
To minimize collection float, a firm should do which of the following?
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