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Suppose you calculate the Net Present Value (NPV) for a project, given the project cash flows and a required rate of return of 12%. After you calculate the NPV, you discover that the actual required rate of return is 14%. The new NPV you calculate using a required rate of return of 14% would be
a. lower than the NPV calculated with a required rate of return of 12%.
b. higher than the NPV calculated with a required rate of return of 12%.
c. the same as the NPV calculated with a required rate of return of 12%.
d. uncertain because it could be either lower or higher than the NPV calculated with a required rate of return of 12%.
You are given the following three money market securities: A US T-bill offering a quoted yield of 6.75%; A bank CD offering a quoted yield of 7.56%; A MA Municipal bond offering a quoted yield of 4.25%; The quoted yield is before tax and credit risk ..
Fei has 11,600 dollars in his retirement account. In addition, he plans to save 8,100 dollars per year in his account for 8 years. His first contribution to his account is expected immediately and his last contribution is expected in 7 years. Fei exp..
Kingston, Inc. management is considering purchasing a new machine at a cost of $3,899,699. They expect this equipment to produce cash flows of $751,375, $875,879, $861,708, $1,095,836, $1,206,531, and $1,338,680 over the next six years. If the approp..
Consider three bonds with 5.3% coupon rates, all making annual coupon payments and all selling at a face value of $1,000. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has matur..
Davis, Inc., currently has an EPS of $2.16 and an earnings growth rate of 7 percent. The benchmark PE ratio is 20. What is the target share price in 7 years?
A US investor has $10 million to invest in interest-bearing securities for one year. He can invest in US dollars at 2 ¾ % p.a. or in pounds sterling at 4 ½ % p.a. The current spot rate (American terms) is 1.8172 dollars per pound. At what spot rate o..
A company has issue one- and two-year bonds providing 8% coupons, payable annually. The yields on the bonds (expressed with continuous compounding) are 6.0% and 6.6%, respectively. Risk-free rates are 4.5% for all maturities. The recovery rate is 35%..
Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm’s stock is currently selling for $57.50. The firm expects to pay a $3.40 dividend at the end of the year (2016). Determine the net proceeds, Nn, tha..
Tiger inc. needs to raise $85,000 to purchase a new machine. Tiger knows its component costs of capital are debt 5%, preferred stock 7%, new equity 13%, and retained earnings 11%. The firm's marginal tax rate is 30 percent. If Tiger expects to genera..
Eagle Products’ EBIT is $340, its tax rate is 35%, depreciation is $12, capital expenditures are $52, and the planned increase in net working capital is $22. What is the free cash flow to the firm?
A small company has a choice between 2 projects. Because the company is highly specialized, it picks its projects carefully. Project A has annual expenses of $556 and annual profit of $23340. The project will last for 5 years. Comparing the two proje..
Bank of America has granted you a ten year loan for $65,000. If your ten annual end of the year payments are $13,380.50, what is the rate of interest Bank of America is charging?
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