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Ted has bought a horse transporter for hi horse ranch for $35,000. The reason is he used to rent transporters to take his horses to competitions and wants to save money on those rental costs. Ted has been renting a transporter every other week (26 times per year) for $200 per day plus $1.00 per mile. The entire trip takes place in one day; he picked the transporter up on Saturday morning and dropped it off Saturday night. His trips are 100 miles in total (round-trip) and he tipped the driver $40 at the end of the day. With the new transporter he will only have to pay for gas and maintenance, at $0.45 per mile. Insurance for the transporter is $1,200 per year (which he did not pay when he rented the transporter.). The transporter will be worth $20,000 (in real terms) after eight years, when Ted’s horse will have to retire. Assume a nominal discount rate of 9% and a 3% forecasted inflation rate. Is the transporter a positive-NPV investment?
How does TVM affect management decisions regarding special terms, such as “no payment due for 6 months, interest free,” or “buy a gift card for $50 and get $5 off your next purchase?” What TVM calculations would have to be considered in offers like t..
Which of the following is true of the primary market? The primary risk of mortgage-backed securities is: The tax deductibility of various expenses such as general and administrative expenses:
Ratios from financial statements can be used to analyze and compare different aspects of a firm, which is often easier for an individual than reading through the financial statements themselves. The ratios determine the how effective and efficient th..
(Common stock valuation, constant growth) You’ve discovered a company that is expected to pay $2.25 dividend at the end of this year. The dividend is expected to grow forever at a constant rate of 4% a year. The required rate of return for this stock..
Fashion Wear has bonds outstanding that mature in 12 years, pay interest annually, and have a coupon rate of 7.5 percent. These bonds have a face value of $1,000 and a current market price of $1,060. What is the company's aftertax cost of debt if its..
An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If Bi1= 0.7 and Bi2= 0.9, what is..
Explain the advantages and disadvantages to entering into a forward contract, and how you make or lose money by taking a naked position on one. Discuss issues of liquidity and your ability to tailor the contract to your needs in terms of delivery dat..
A project will produce cash inflows of $2,000 a year for 8 years. There is also a final cash inflow of $10,000 in year 8. The project's initial cost is $12,000. What is the net present value of this project if the required rate of return is 15 percen..
Suppose you borrow a large sum of money to buy a house, and you will pay back the loan over thirty years making fixed monthly payments. After fifteen years have passed, will you have paid off half the principal, more than half, or less than half? Why..
Bayou Okra Farms just paid a dividend of $3.30 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for the..
Suppose you have a portfolio that contains stocks that track the market index. You now want to change this portfolio to be 25% in commodities and 75% in the market index. How would you use derivatives to implement your strategy? How would you impleme..
What is the standard way to calculate a company’s cost of capital? And what important observations have been offered by finance theory when estimating a firm’s WACC?
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