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You are contemplating the purchase of an office building. Net operating income for the first year is expected to be $300,000 and increase by the projected inflation of 2% over the next five years. The property is priced at $2,100,000 and you normally assume 15% for land; your tax bracket is 28% for all income; you plan to borrow 70% of the purchase price with a conventional fixed-rate mortgage at a rate of 9% for 20 years; depreciation is straight line for 30 years; you are using a 5-year analysis; and expect that the building will sell for a price that compounds at the rate of inflation at the end of year 5 with selling expenses of 5%. What is the BTIRR?
Johnson and Johnson reported earnings per share of $6.400 in 2013 and paid dividends per share of $3.40 in that year. The firm reported depreciation of $630 million in 2013 and capital expenditure of $950 million. Estimate the value per share, using ..
A friend says that she expects to earn 13.50% on her portfolio with a beta of 2.00. You have a two- asset portfolio including stock X and a risk free security. The expected return of stock X is 11.00% and the beta is 1.10. The expected return on the ..
MVP Inc has produced rodeo supplies for over 20 years. The company currently has a debt-equity ratio of 50% and is in the 40% tax bracket. The required return on the firm’s levered equity is 16%. MVOP is planning to expand its production capacity. Us..
You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 3% and a risky portfolio, P, constructed with two risky securities, X and Y.
ACME has hired you to study the feasibility of a new toy that requires a $5 million initial investment. ACME expects annual cash flows of $880,000 for the next 10 years. The discount rate is 10%. a. What is the NPV of the new toy? b. After one year, ..
In the early 1990s, the California Air Resources Board (CARB) started planning its “Phase 2” requirements for reformulated gasoline (RFG). RFG is gasoline blended to tight specifications designed to reduce pollution from motor vehicles. CARB consulte..
A small college has space for a maximum of 1,000 students. The college can identify 500 of its students who are willing to pay $20,000 per year and 500 students who are willing to pay $10,000 per year. To continue operating, the college must receive ..
Suppose that an investor owns 10% of the stock of firm L, and assume that this investor can lend and borrow at the same interest rate as firm L, that is, at 12% (recall the assumption of perfect markets). Based on the trade-off theory of capital stru..
A 20- year bond with a par value of 1000 has 9 percent annual coupon. The bond currently sells for $ 925. if the remains at its current rate. What will be the price of the bond 10 years from now?
Suppose that Lil John Industries equity is currently selling for $42 per share and that 3.5 million shares are outstanding. The firm also has 65,000 bonds outstanding, which are selling at 103% of par. Assume Lil John was considering an active change..
Bank Y has an inventory of 14-year zero-coupon bonds with a face value of $400 million. The bonds currently are yielding 8.5 percent in the over-the-counter market. a. What is the modified duration of these bonds? b. What is the price volatility if t..
Consider a 3-year bond with a par value of $1,000 and an 8% annual coupon. If interest rates change from 8 to 6% the bond's price will:
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