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Petroleum Inc. (PI) controls offshore oil leases. It is considering the construction of a deep-sea oil rig at a cost of $500 million. The price of oil is $100/bbl. and extraction costs are $50/bbl. PI expects costs to remain constant. The rig will produce an estimated 1,200,000 bbl. per year forever. The risk-free rate is 10% per year, which is also the cost of capital. (Ignore taxes). Suppose that oil prices are uncertain and are equally likely to be $120/bbl. or $80/bbl. next year. Calculate today's NPV of the project (i.e., NPV @ t = 0) if it were postponed by one year.
Marcia Stubern is planning for her golden years. She will retire in 20 years, at which time she plans to begin withdrawing $60,000 annually. She is expected to live for 20 years following her retirement.
Assume your firm is an auto manufacturer. Its fixed cost for a certain type of car is $5 billion. The variable cost per unit is $18,000, and you sell the car for $30,000.
Zoso is a rental car company that is trying to determine whether to add 28 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method.
You are given the following information: Stockholders' equity = $2 billion, price/earnings ratio = 12, common shares outstanding = 34 million, and market/book ratio = 2. Calculate the price of a share of the company's common stock.
Calculate the arithmetic average returns for large-company stocks and T-bills over this period. Calculate the observed risk premium in each year for the large-company stocks versus the T-bills.
Sony Corp. packed a shipment of videocassette tapes into a 40-foot ocean container for transport to England. Sony put the tapes into 1,320 cardboard cartons, then strapped the cartons onto fifty two wooden pallets.
Just Rolling Along Inc. was organized on May 1, 2012, by two college students who recognized an opportunity to make money while spending their days at a beach along Lake Michigan.
You purchased 1,000 shares of the New Fund at an NAV of $27 per share at the beginning of the year. You paid a front-end load of 2%. The securities in which the fund invests increase in value by 11% during the year.
Assume there are a bunch of mortgages that are supposed to pay principal payments and interest payments of $2100 during the year are pooled together and sold as securities.
Butterfly Tractors had $24.00 million in sales last year. Cost of goods sold was $10.00 million, depreciation expense was $4.00 million, interest payment on outstanding debt was $3.00 million, and the firm's tax rate was 35%.
A stock has a 50% chance of producing a 20% return, a 25% chance of producing a 10% return, and a 25% chance of producing a -10% return. What is the stock's expected return
McDermott estimates that the new project will generate $900,000 in annual sales at the end of each of the next four years and that operating costs (excluding depreciation) will equal $400,000.
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