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Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. The company’s cost of capital is 12%. What is the equivalent annual annuity for each plane?
A firm’s existing assets have an expected return of 16% and an associated standard deviation of 20%. A proposed project has an expected return of 26% and an associated standar
A stock has had returns of 10 percent, 28 percent, 15 percent, −16 percent, 28 percent, and −6 percent over the last six years. What are the arithmetic and geometric returns f
Suppose that research shows that by buying stocks issued by companies whose names begin with the letter G investors can earn above-normal returns in even-numbered years. From
Dew Drop In, Inc. announces is quarterly dividend will increase from $3.80 to $4.00. After the announcement, the price of Dew Drop In, Inc.'s stock drops. The most likely expl
Ricky Ripov’s Pawn Shop charges an interest rate of 15 percent per month on loans to its customers. Like all lenders, Ricky must report an APR to consumers: What rate should t
You are evaluating two different silicon wafer milling machines. The Techron I costs $243,000, has a three-year life, and has pretax operating costs of $64,000 per year. The T
Calculate Return on Equity using the Du Point identity. If JCI has 685 million shares outstanding at the end of 2013 and a market value of $24 billion. Calculate the price to
Terrius Company considers a new project that has the following cash flow and the required rate of return (WACC) data. What is the project's profitability index (PI)? Do you th
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