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Modern Federal Bank is setting up a brand new branch. The cost of the project will be $1.2 million. The branch will create additional cash flows of $235,000; $412,300; $665,000, and $875,000 in years 1-4 respectively. The firm’s cost of capital is 12%. What is the IRR on this branch expansion?
A new product has two major potential markets. The product will succeed in both or fail in both, with equal probability. The markets are otherwise independent. You may enter the markets sequentially or simultaneously either now, one year from now, or..
A perpetuity is to pay $500 on the first of each month from January through September, inclusive. No payments will be made in October, November, or December. This pattern of payments is to continue forever. Assuming the monthly effective interest rat..
Sports Corp has 10.3 million shares of common stock outstanding, 5.3 million shares of preferred stock outstanding, and 1.3 million bonds. If the common shares are selling for $25.3 per share, the preferred share are selling for $12.8 per share, and ..
ABC Corporation’s bonds have 22 years remaining until maturity. Interest is paid annually at the end of each year. Each bond has a par value of $1,000, a coupon rate of 5.75% and a current market price of $924. (a) What is the amount of annual intere..
Identify relevant incremental cash flows - Calculate cost of capital (k-wacc) to use as the discount rate and calculate the metrics of capital budgeting: Net Present Value, Profitability Index,
Seven years ago XYZ International issued some 31-year zero-coupon bonds that were priced with a market's required yield to maturity of 12 percent and a par value of $1,000. What did these bonds sell for when they were issued?
Three years ago, Sam purchased a farm on contract from an older lady for $149,000 at 7% interest over 15 years. The lady died unexpectedly and the heirs would like Sam to pay off the contract now, which has a current remaining balance of $130,000 wit..
Ordinary annuities are common with leases and premiums paid to insurance companies because these cash flows usually occur at the beginning of the period. An IRR of 14% is better than an IRR or 12% (all other variables the same).
Suppose Microsoft projected free cash flow for next year is FCF = $8.75 billion, and due to expected lower revenues and slower growth sales FCF is expected to grow at a constant rate of only 4.5% into the infinite future. The company’s weighted avera..
Koy Corporation's 5-year bonds yield 7%, and 5-Year T-bonds yield 5.15%. The real risk-free rate is r*=3%, the inflation premium for 5=year bonds is IP=1.75%, the liquidity premium for Koy s bonds is LP=.75% versus zero for T-bonds, and the maturity ..
A project has a net present value of zero. Which one of the following best describes this project?
Three days ago, you entered into a futures contract to sell €62,500 at $1.50 per €. Over the past three days the contract has settled at $1.50, $1.52, and $1.54. How much have you made or lost?
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