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Cheung Kong limited is deciding whether to proceed with project A. The cost would be a $10 million in year 0. There is a 55% chance that A would be hugely successful and would generate annual after-tax cash flows of $6 million per year during Years 1,2, and 3. However, there is a 45% chance that A would be less successful and would generate only $1 million per year for the 3 years. If project A is hugely successful, it would open the door to another investment, Project B, which would require an outlay of $9 million at the end of year 2. Project B would then be sold to another company at a price of $20 million at the end of year 3. Cheung Kong's WACC is 12%.
A.If the company does not consider real options, what is Project A's NPV?
b.What is project A's NPV considering the growth option?
c. How Valuable is the growth option?
Assume the opportunity cost of capital is 8 percent. What is the opportunity cost of adding petite sizes?
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Tibbs Corporation has the following information for the current year: Net income = $300; Net operating profit after taxes (NOPAT) = $400; Total assets = $2,900; Short-term investments = $200;
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A bond with a face value of 100; 000 has coupons of 3% per annum payable semi-annually. It will be redeemed at par. It is purchased for a price of 91,825. At this price the yield to maturity is 4% per annum convertible semi-annually.
Suppose six months ago the US Treasury yield curve was flat at a rate of 4 percent per year suppose semi-annual coupon payments and semi-annual compounding and you bought a thirty year US Treasury bond.
Southland Industries has $60,000 of 16 percent bonds outstanding, 1,500 shares of preferred stock paying an yearly dividend of $5 per share, and 4,000 shares of common stock outstanding.
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