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A. Garner-Wagner is considering investing in a project that requires an investment of $3,000,000. The project will generate a cash inflow of 500,000 per year for the next 5 years. The cost of capital is 10%. What is the project's net present value? Please show all work.
B. If Garner-Wagner goes ahead with this project today, it will obtain knowledge that will give rise to additional opportunities 5 years from now (at t = 5). The company can decide at t = 5 whether or not it wants to pursue these additional opportunities. Based on the best information available today, there is a 35% probability that the outlook will be favorable, in which case the future investment opportunity will have a positive net present value of $6 million at t = 5. There is a 65% probability that the outlook will be unfavorable, in which case the future investment opportunity will have a negative net present value of -$6 million at t = 5. Garner-Wagner does not have to decide today whether it wants to pursue the additional opportunity. Instead, it can wait to see what the outlook is. However, the company cannot pursue the future opportunity unless it makes the $3 million investment today. What is the estimated net present value of the project, after consideration of the potential future opportunity? Please show all work.
AA Industries's stock has a beta of 1.7. The risk-free rate is 5%, and the expected return on the market is 11%. What is the required rate of return on AA's stock?
In an effort to speed up the collection of receivables, Hill Publishing Company is considering increasing the size of its cash discount by changing its credit terms from "1/ 10, net 30" to "2/ 10, net 30" Currently, the company’s collection period av..
You've been given the opportunity to invest $100,000. In exchange, you will receive quarterly payments of $5,000 for the next 7 years. What rate of return are you earning on your money? (Your answer should be the annual rate of return expressed as a ..
Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 13.0% and 15.0%, respectively. If you currently hold a market index portfolio, what would be the alpha for Portfolios A and B?
Expected Return If a company's current stock price is $26.40 and it is likely to pay a $2.15 dividend next year. Since analysts estimate the company will have a 14% growth rate, what is its expected return?
Alaskan Markets has a target capital structure of 45 percent debt and 55 percent equity. The pretax cost of debt is 6.5 percent, the tax rate is 34 percent, and the cost of equity is 13.7 percent. The firm is considering a project that is equally as ..
You are helping your friend plan for her retirement. if interest rates are 12 percent per year, compounded quarterly, how much must she deposit into her retirement fund at the end of each month (in equal amounts per month) over the next 25 years, in ..
comparing public and private budget preparation strategies
Determine the annual repayment schedule for the first two years (ie, interest, principal repayment, and balance owed) for each of the following: (Assume one payment annually) Compare the payments required by each mortgage.
Are bond ratings in concept similar to your own personal credit ratings? The U.S. government is the world’s largest borrower and currently enjoys a high-rating for its low default risk. Explain how receiving a lower bond-rating may affect the U.S. go..
What is the (1) marginal and (2) average tax rate paid for a firm with taxable income of a). $25,000? b). $85,000? c). $250,000? d). $12 million? e). $200 million?
University Corp. issued five-year bonds that pay a coupon of 6.5 percent semi annually. The current market rate for similar bonds is 5.5 percent. How much will you be willing to pay for University's bond today?
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