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1) Explain how a net present value (NPV) profile is used to compare projects. How does this profile compare to that of internal rate of return (IRR)? How does reinvestment affect both NPV and IRR? Provide support for your assertions.
2) Capital budgeting can be affected by exchange rate risk, political risk, transfer pricing, and strategic risk. Select a sector and specific company in the mid- large size range, and explain how each of these factors can affect capital budgeting. Which of these factors provides the greatest impact to your selected organization? What measure might one take to reduce adverse impacts of any or all of these factors?
Jen's Fashions is growing quickly. Dividends are expected to grow at a 19 percent rate for the next 3 years, with the growth rate falling off to a constant 8 percent thereafter. The required return is 12 percent and the company just paid a $3.80 annu..
A Treasury STRIPS matures in 5 years and has a yield to maturity of 9.9 percent. Assume the par value is $100,000. What is the price of the STRIPS? What is the quoted price?
Kurnick Co. expects that the pound will depreciate from $1.70 to $1.68 in one year. It has no money to invest, but it could borrow money to invest. It has been approved by a bank to borrow either 1 million dollars or 1 million pounds for one year. De..
In February 2009 Treasury 6s of 2026 offered a semiannually compounded yield of 3.5965%. Recognizing that coupons are paid semiannually, calculate the bond's price in details. What is the cupon rate / what is the YTM?
Discuss the following statement: All else equal, firms with relatively stable sales are able to carry relatively high debt ratios. Is this statement true or false? Why? Why is EBIT generally considered independent of financial leverage? Why might EBI..
Distinguish between beta (i.e market) risk, within-firm ( i.e, corporate) risk, and stand-alone risk for a potential project. Of the three measures, which is theoretically the most relevant, and why? Suppose a firm estimates its overall cost of capit..
Exodus Limousine Company has $1,000 par value bonds outstanding at 13 percent interest. The bonds will mature in 50 years. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calcula..
How can companies strengthen the moral courage of employees?
Lawler's is considering a new project. The company has a debt-equity ratio of 0.72. The company's cost of equity is 15.1 percent, and the after tax cost of debt is 7.2 percent. The firm feels that the project is riskier than the company as a whole an..
Deep Water Drilling has operations off the coast of South America helping its clients (principally sovereign oil companies) tap into oil reserves located more than 10,000 feet below sea level. The Company’s cost of capital is 6%. If Deep Water Drilli..
After reviewing the module resources, discuss some benefits and pitfalls of global investing. How would you as a portfolio manager balance these for your clients? Discuss the relative importance of foreign stock markets over time vis-à-vis the U.S. f..
Using the corporate tax rates find the marginal tax rate for the following levels of corporate earnings: 13,100; 60,600; 88,200; 204,000; 402,000; 1.6 million and 19.8 million.
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