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Which of the following statements is CORRECT?
An externality is a situation where a project would have an adverse effect on some other part of the firm's overall operations. If the project would have a favorable effect on other operations, then this is not an externality.
An example of an externality is a situation where a bank opens a new office, and that new office causes deposits in the bank's other offices to decline.
The NPV method automatically deals correctly with externalities, even if the externalities are not specifically identified, but the IRR method does not. This is another reason to favor the NPV.
Both the NPV and IRR methods deal correctly with externalities, even if the externalities are not specifically identified. However, the payback method does not.
Identifying an externality can never lead to an increase in the calculated NPV.
Ms. Early Saver has decided to invest $1,000 at the end of each year for the next 10 years, then she will just let the amount compound for 40 additional years. Her brother, Late Saver, has a different investment program: He will invest nothing for th..
A project costs $10,000 to pursue today and generates pre-tax savings of $1,500 per year for the foreseeable future. The marginal tax rate is 35%. The proect also requires an initial NWC investment of $300 which will not be recouped. If the required ..
Use the information below to estimate the expected return on the stock of Bieber Corporation.
What some of the factors that a finance manager considers in choosing an appropriate discount rate for a capital investment project
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A project has the following projected outcomes in dollars: $240, $310, and $560. The probabilities of their outcomes are 20%, 60%, and 20% respectively. What is the expected value of these outcomes?
Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza?
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The Successful Mutual Fund’s beta is 1.4 and the market risk premium is 6.5% and the return in the market is 12%. Calculate the expected return of the fund? (Hint: need to find the risk free rate first, then calculate the return). (14.6%)
Whiteside Corporation issues $500,000 of 9% bonds, due in 10 years, with interest payable semi annually. At the time of issue, the market rate for such bonds is 10%. Compute the issue price of the bonds.
(Cost of preferred stock) Your firm is planning to issue preferred stock. The stock is expected to sell for $98.64 a share and will have a $100 par value on which the firm will pay a 13.6 percent dividend. What is the cost of capital to the firm for ..
The Shepersky Corporation was authorized to issue 2,000,000 shares of $0.01 par value common stock and 200,000 shares of $50 par value, 10 percent preferred stock. To date, Shepersky has issued 600,000 shares of common stock and no preferred stock. ..
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