Reference no: EM13953625
For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision.
Project Initial Investment Year 1 Cash Flow A 500,000 125,000 B 500,000 120,000
In what ways can the IRR make you give a flawed decision and what relationship the NVP have with the IRR?
What is the best way to select a project that has resource restrictions?
Explain. Why must opportunity costs be included in cash flows, while sunk costs and interest expense must not?
Compare and contrast the uses of break-even analysis and sensitivity analysis in evaluating project risk. What are the effects of coupon rate to the sensitivity of a bond price and to changes in interest rates?
What is the relation between a corporate bond’s expected return and the yield to maturity. In your answer, define default risk and explain how these rates incorporate default risk Why should investors who identify positive-NPV trades be skeptical about their findings if they don’t inside information or a competitive advantage? What return should the average investor expect to receive?
|
What is the rate of growth in dividends
: You are provided the following information of a firm's stocks and bonds along with other pertinent information. The stocks have a standard deviation of 50% and a correlation of 0.6 with the market index. What is the beta of the stock? What is the cos..
|
|
Cost of capital depend on systematic risk
: Why, in an efficient capital market, does the cost of capital depend on systematic risk rather than diversifiable risk. Explain your answer using an example from the text.
|
|
A bond is likely to be called if its coupon rate
: A bond is likely to be called if its coupon rate is below its YTM. A bond is likely to be called if its market price is below its par value. Even if a bond’s YTC exceeds its YTM, an investor with an investment horizon longer than the bond’s maturity ..
|
|
Characteristics of large stocks versus large stocks-bonds
: Define and discuss the volatility and return characteristics of large stocks versus large stocks and bonds and what affects they have on pricing risk? Give examples to support your answer.
|
|
Contrast the uses of break-even and sensitivity analysis
: For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision. What is the best way to select a p..
|
|
Buying the particular shipment the customer
: You are a financial manager for a wholesale children’s toy distributor. The suppliers are from China, Japan, and the Netherlands. A customer offers $14 million for a 1000 lb shipment. Buying the particular shipment the customer wishes to purchase fro..
|
|
Forecasts the free cash flows
: A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13% and the FCF's are expected to continue growing at a 5% rate after year 3. Assuming that the ROIC is expected to remain constant in year 3 a..
|