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Suppose that you are approached with an offer to purchase an investment that will provide cash flows of $1,300 per year for 15 years. The cost of purchasing this investment is $9,200. You have an alternative investment opportunity, of equal risk, that will yield 9% per year. What is the NPV that makes you indifferent between the two options?
What is “Yield”? How is it calculated? What factors make up yield for bonds? What factors make up yield for stocks? What impact does inflation have on yield?
You are a financial analyst for the Ajax Company, which uses about $1 million of inventory per month. The purchasing manager has come to you for help with a buying decision. He can get a big discount on $15 million of inventory by buying it all at on..
Gregg Company recently issued two types of bonds. The first issue consisted of 20-year straight (no warrants attached) bonds with an 8% annual coupon. The second issue consisted of 20-year bonds with a 6% annual coupon with warrants attached. Both bo..
Kelsey Drums, Inc., is a well-established supplier of fine percussion instruments to orchestras all over the United States. The company's class A common stock has paid a dividend of $11 per share per year for the last 17 years. The current required r..
The Muse Co. just issued a dividend of $3.45 per share on its common stock. The company is expected to maintain a constant 7.10 percent growth rate in its dividends indefinitely. If the stock sells for $69 a share, what is the company’s cost of equit..
The Shome Corporation, a firm in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital, is considering a new project. The project involves the introduction of a new product. Working-capital requirements Ther..
The Corner Grocer has a 7-year, 6 percent semi-annual coupon bond outstanding with a $1,000 par value. The bond has a yield to maturity of 5.5 percent. Show mathematically what happens if the market yield suddenly increases to 7 percent. Elaborate in..
Your daughter will start college one year from today, at which time the first tuition payment of $58,000 must be made. Assuming that tuition does not increase over time and that your daughter remains in school for four years, how much money do you ne..
When projecting growing cash flows into perpetuity, the estimate should take into account the extra amount required for investment consistent with any projected growth in operating profit. (True, False, Uncertain and explain your response)
McIntyre's Moats, Inc. most recent dividend was $2.00. Its dividend is expected to grow by 25% per year for the next two years, and then grow at a constant rate of 5% per year. If you require a 15% rate of return how much would you pay for a share of..
A share of common stock has just paid a dividend of $3.00. If the expected long-run growth rate for this stock is 5 percent, and if investors require an 11 percent rate of return, what is the price of the stock? Show work
You have $21,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 10 percent and Stock Y with an expected return of 12.5 percent. If your goal is to create a portfolio with an expected return of 10.95 percent, how m..
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