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Phillips Industries runs a small manufacturing operation. For this fiscal year, it expects real net cash flows of $190,000. Phillips is an ongoing operation, but it expects competitive pressures to erode its real net cash flows at 4 percent per year in perpetuity. The appropriate real discount rate for Phillips is 11 percent. All net cash flows are received at year-end. What is the present value of the net cash flows from Phillips’s operations?
Trident Corp. recently purchased machinery parts worth 23.5 million Mexican Pesos (MP). Management needs to find out the U.S. dollar cost of the payables. It has access to two quotes for Canadian dollars (C$): C$1.0774/$ and C$0.0981/MP. What will it..
A 20-year U.S. Treasury bond with a face value of $10,000 pays a coupon of 5.25% (2.625% of face value every six months). The semiannually compounded interest rate is 5.0% (a six-month discount rate of 5.0/2 = 2.5%). What is the present value of the ..
Great Wall Pizzeria issued 8-year bonds one year ago at a coupon rate of 6.1 percent. If the YTM on these bonds is 7.5 percent, what is the current bond price?
Here are the data on $1000 par value bonds issued by Microsoft, GE Capital, and Morgan Stanley at the end of 2012. Assume you are thinking about buying these bonds as of January 2013. How would the value of the bonds change if (1) your required rate ..
The rule of choosing the final proposal is simple. First, Z is the person to determine who (either X or Y) is the proposal raiser.
Assume you have a subsidiary in Australia. The subsidiary sells mobile homes to local consumers in Australia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all of its materials from Hong Kong. Explain wheth..
Larry Davis borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years. How much will his annual payments be? How much interest will he pay over the life of the loan?
If you are offered $340,000 in 15 years and you can earn 13 percent on your money, what is the present value of $340,000? Lance Murdock purchased a wooden statue of a Conquistador for $7,500 to put in his home office 6 years ago. Lance has recently m..
You are considering a 30-year, $1,000 par value bond. Its coupon rate is 8%, and interest is paid semiannually. If you require an "effective" annual interest rate.
Suppose Joe has the choice of two investments. He can invest in a bond, which in 10 years (not accounting for inflation), will have a 50% probability of a 50% return and a 50% probability of a 40% return. On the other hand, he could invest in a mutua..
Suppose a firm in planning to invest $ 1,000,000 to invest in a risk free asset and a risky asset A. Assume that µf = 0.05, µA = 0.10 and ?A = 0.17. The company has capital reserves that could cover $ 100, 000 but no more and would like as a result t..
The Falling Snow Company is considering production of a lighted world globe that the company would price at a markup of 0.30 above full cost. Management estimates that the variable cost of the globe will be $70 per unit and fixed costs per year will ..
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