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Your computer manufacturing firm must purchase 10,000 keyboards from a supplier. One supplier demands a payment of $100,000 today plus $10 per keyboard payable in one year. Another supplier will charge $21 per keyboard, also payable in one year. The risk-free interest rate is 6%.
What is the difference in their offers in terms of dollars today? Which offer should your firm take?
Suppose your firm does not want to spend cash today. How can it take the first offer and not spend $100,000 of its own cash today?
Assume that the Pure Expectation Theory determines interest rates in the markets.
A project costs $25,000 and generates cash inflows of $1,000, $1,500, $1,750, and $30,000 in years 1, 2, 3, and 4 respectively. What is the project’s IRR?
Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines.
The 2011 balance sheet of Creation Paints Incorporated showed $550,000 in the common stock account and $3.5 million in the additional paid-in capital/surplus account. The 2012 balance sheet showed $675,000 in the common stock account and $4.2 million..
As jewelry store manager, you want to offer credit, with interest on outstanding balances paid monthly. What APR rate should you charge your customers?
What is the value of her position at maturity if the ending spot rate is $0.5000/R$?
Mullineaux Corporation has a target capital structure of 70 percent common stock, 15 percent preferred stock, and 15 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 5 percent. W..
What is the current required return for Encore stock? What will be the new required return for Encore stock assuming that the firm expands into European and Latin America markets as planned? If the securities analysts are correct and there is no grow..
Cutler Compacts will generate cash flows of $30,000 in year 1 and $65,000 in year 2. They are presented with a new opportunity. If they make an immediate investment of $25,500, they can expect to increase their cash flows to $66,500 in year 1 and $78..
(Cost of debt) Gillian Stationery Corporation needs to raise $569,000 to improve its manufacturing plant. It has decided to issue a $1,00 par value bond with an annual coupon rate of 8.4% with interest paid semi-annually at 15-year maturity. Investor..
Compound Interest. Old time savings bank pays 4% interest on its savings accounts. If you deposit $1,000 in the bank and leave it there: how much interest will you earn in the first year? how much interest will you earn in the second year?
Which of the following is NOT one of the simplifying assumptions made for the three main methods of capital budgeting?
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