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Using an EXCEL spreadsheet and showing formulas***
Assume that you are the chief financial officer at Porter Memorial Hospital. The CEO has asked you to analyze two proposed capital investments—Project X and Project Y. Each project requires a net investment outlay of $10,000, and the opportunity cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows:
Year Project X Project Y
0 $10,000 $10,000
1 6,500 6,500
2 3,000 3,000
3 3,000 3,000
4 1,000 3,000
a. Calculate each project’s payback, NPV, and IRR. b. Which project (or projects) is financially acceptable? Explain your answer.
The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $3 million and net plant and equipment equals $2.7 million. It has notes payable of $150,000, long-term debt of $750,000, a..
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If 60 percent of its assets were loans, what percentage of the loans could go sour before the bank would lose all of its capital?
Compute the IRR for Project F. The appropriate cost of capital is 11 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project F Time: 0 1 2 3 4 Cash flow –$10,400 $4,000 $4,830 $2,170 $2,800 IRR % Sho..
The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer’s price is $60,000 and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). Purchase of t..
Suppose that firm Ds shares are currently selling for $38. After six months it is estimated that the share price will either rise to $43.32 or fall to $33.82. Suppose that a European put option with an exercise price of $41 is written today and will ..
Which of the following best describes the risk measure known as beta? Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. What is the firm's weighted average cost of capital..
Barnes Enterprises has bonds on the market making annual payments, with 14 years to maturity, a par value of $1,000, and a price of $953. At this price, the bonds yield 9.4 percent. What must the coupon rate be on the bonds?
You manage a $20M mutual fund that has a beta of 1.40 and a 10.30% required return. The risk-free rate is 3.30%. You now receive an additional $5M, which you invest in stocks with an average beta of 0.80. What is the required rate of return on the ne..
Explain what backdating stock options entails. - Is backdating consistent with rewarding executives who help to maximize shareholder wealth?
Time bank of New York expects new deposit inflows next month of $265 million and deposit with straws of $425 million. The banks economics department has projected that new loan demand will reach $400 million and customers with approved credit lines w..
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