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An automobile manufacturer is converting an assembly line from standard vehicles to hybrid vehicle production. Conversion will cost $100 million. Production capacity will be 4000 vehicles in the first year and will increase by 1000 vehicles per year for all future years. Each hybrid earns a net profit of $5,000.
a. If the interest rate is 15%, how many years will it take until the present worth of the net benefits equals the $100 million initial cost? Report your answer to 2 decimal places.
b. Using the simple payback method, how many years will it take the $100 million investment to pay back? Report your answer to 2 decimal places.
c. Based on your answers to parts a. and b. would you recommend this investment? Why or why not?
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The risk-free rate of return is currently 0.02, whereas the market risk premium is 0.05. If the beta of RKP, Inc., stock is 1.7, then what is the expected return on RKP?
Shinoda Corp. has 6 percent coupon bonds making annual payments with a YTM of 5.4 percent. The current yield on these bonds is 5.75 percent. How many years do these bonds have left until they mature?
Write system of equations for the 2nd Markovitz problem: given n assets and correlations between them and given a sigma, find equations for weights of the portfolio which maximize the mean return with a given sigma. You need to use Lagrange multiplie..
(Bond Valuation) Crawford Inc. has two bond issues outstanding, both paying the same annual interest of $85, called Series A and Series B. Series A has a maturity of 12 years, whereas Series B has a maturity of 1 year. What would be the value of each..
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