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An oil drilling company must choose between two mutually exclusive extraction projects, and each costs $12 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t=1 of $14.4 million. Under Plan B, cash flows would be $2.1 million per year for 20 years. The firm's WACC is 12 %
a. Construct NPV profiles for Plans A and B, identify each project's IRR, and show the approximate crossover rate.
b. Is it logical to assume that the firm would take on all available independent, average-risk projects with returns greater than 12%? Is all available projects with returns greater than 12% have been undertaken does this mean that cash flows from past investments have an opportunity cost of only 12 % because all the company can do with these cash flows is to replace money that has cost of 12%? Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows?
Assume that the firm can earn 10 percent on marketable securities and that there are 260 working days and hence 260 transfers from each of the ten lockbox locations per year.
Computation of total interest on the investment and how much total interest income would the money market lender receive
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Design a financial plan for them. How much would be their initial deposit? Would you use simple or compound interest? Would you compound the interest annually or monthly?
What types of projects require more detailed analysis in the capital budget process? What types of analysis (NPV, IRR, etc.) would one want to employ with different types of projects? Why?
Multiple choice questions on basic accounts, leverage and financial instruments - extent to which inventory financing may be used depends on
Sony's stock price at the end of last year was $23.50 and its earnings per share for the year were $1.30. What was its PE ratio?
Discuss the two material variances that may occur, including how they are calculated and reasons for their occurrence.
Hanebury Manufacturing Company has preferred stock outstanding with par value of $50. The stock pays a quarterly dividend of $1.25 and has a current price of $71.43. Find out the nominal rate of return on preferred stock?
Assume a proposed new road to be created between two cities will lower the average cost per trip by car from $5 to $4. Currently, 500,000 trips are made between the two cities per year.
B) Create a chart showing the timing and amount of all cash flows. c) What is the initial value of the swap?
Your parents will retire in 22 years. They currently have $280,000, and they think they will need $1,350,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don't save any additional funds? Round your ans..
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