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"Your company is considering investing in a country that usually has manageable inflation, but where there is a small probability of high annual inflation (more than 20%). If the company invests in the country, it will spend $1133 immediately, and the investment will last 6 years. The net cash flow in ACTUAL dollars from year 1 through year 6 follows a beta distribution with alpha = 1, beta = 1, A = 418, and B = 646. (When alpha = 1 and beta = 1 in a beta distribution, the distribution is identical to a uniform distribution.) Each year's cash flow follows the same distribution and is independent of the other years. (In other words, you need 6 beta random variables, one for each year.) The general inflation rate is also uncertain. The inflation rate follows a lognormal distribution, where the 50th %ile = 0.04 and the 0.9th %ile = 0.12 where the inflation rate is expressed as a decimal (not as a percentage). Assume the inflation rate remains the same in each year. Use SIPmath with 100,000 trials to calculate average or expected net present worth of the investment. The company's INFLATION-FREE MARR is 14%."
Suppose a bank has 100 million dollars of assets to invest. It can either invest in risky or safe loans. Safe loans will be worth $105 M in one year with certainty. Risky loans will be worth either $70 M or $130 M in one year, each with equal probabi..
What is project NPV if the discount rate is 3%? What if it is 18%?
They like returns and dislike risk. If so, why do we contend that only systematic risk and not total risk is important?
How financial statements vary across industries. What are the differences between financial statement requirements for governmental and nonprofit organizations.
Meadow Brook Manor would like to buy some additional land and build a new assisted living center. The anticipated total cost is $20.5 million. How long does the company have to wait before expanding its operations?
What was the effective interest rate the engineer paid for the loan?
A stock has a beta of 1.2, the expected return on the market is 11.4 percent, and the risk-free rate is 4.75 percent. What must the expected return on this stock be? What is the portfolio weight of each stock? What is the expected return of your port..
You open a brokerage account and purchase 200 shares of Google at $443.05 per share. You borrow 40% from your broker to help pay for the purchase. The interest rate on the loan is 8%. What is the initial loan amount in your account?
What is the immediate dilution potential for this new stock issue?
Pacific Packaging's ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-capital ratio of 45%, which will result in annual interest charges of $564,000. The firm has no plans to use preferred stock..
The Senate recently released a report on wrongdoing at JP Morgan Chase. What options did the executives and traders have for dealing with this wrongdoing?
What will be the firm’s cost of common equity and its WACC when the firm’s target capital structure is 40% debt and 60% common equity?
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