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A project has cash flows of -$1,000, -$2,000, +$3,000, and +$4,000 in consecutive years.
Your cost of capital is 30% per annum. Use the IRR rule to determine whether you should take this project. Does the NPV rule recommend the same action?
Discuss the deductibility or not of the following amounts: Interest paid in respect of an overdraft used to purchase additional equipment used in the business. $1,200 paid to lawyers for advising and preparing a partnership agreement. In a chart of a..
A Treasury bond that matures in 8 years has a yield of 3.24%. A 8-year corporate bond has a yield of 7.8%. Assume that the liquidity premium on the corporate bond is 0.36%. What is the default risk premium on the corporate bond?
Two alternatives are suggested for improvement to a power generation plant. Alternative A costs $60,000 and provides yearly benefit of $16,000. Alternative B requires $84,000 of initial cost. However, it will yield benefits in the order of $22,000 pe..
Four months ago, you purchased 1,200 shares of LBM stock for $9.30 a share. Last month you received a dividend payment of $.065 a share. Today, you sold the shares for $8.62 a share. What is your total dollar return on this investment?
Dividend valuation with a constant growth model is similar to a growing perpetuity problem. Yield to maturity reflects the current market rate and it is the appropriate discount rate that matches the present value of the bond's cash flow stream and p..
Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,084,000 and will last for six years. Variable costs are 40 percent of sales, and fixed costs are $225,000 per year. Both machines will be..
Rocky Mountain Lumber, Inc., is considering purchasing a new wood saw that costs $50,000. The saw will generate revenues of $100,000 per year for five years. The cost of materials and labor needed to generate these revenues will total $60,000 per yea..
Riverhawk Sport Authority (RSA) will pay a dividend of $7 for each of the next 3 years, $8 for each of the years 4-6, $9 for each of the years 7-9, and a dividend of $10 for year 10. Thereafter, the company will pay no dividends. If you require 11 pe..
Let’s suppose that a firm issues two tranches (“series”) of bonds, in addition to preferred stock and retained earnings. It has so much retained earnings that it does not have to issue new equity. However, the two different tranches have different fl..
Whitewater Inc. has a debt of 20,000,000 Euro and the value of levered equity is 14,500,000 Euro. The company keeps a constant debt policy. Also the company has a constant and perpetual EBITDA. Knowing that the corporate tax rate is 36% and that the ..
Risk-free assets. Government bonds are considered to be 'risk-free' assets. Why, then, do they give a return? Are they truly completely free of risk? On January 27, 2010, Steve Jobs took the stage to announce, as expected, a new addition to the Apple..
Firm A has a value of $100 million and Firm B has a value of $60 million. Merging the two would enable cost savings with a present value of $20 million. Firm A purchases Firm B for $65 million. How much do Firm A's shareholders gain from this merger?
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