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Stu can purchase a one-bedroom house near his college today for $110,000, including the cost of some minor repairs. He expects to be able to resell it in four years for $150,000 if he just puts a little effort into cleaning up the property. At a discount rate of 6.5 percent, what is the expected net present value of this purchase opportunity?
a. $3,001.61
b. $2,487.43
c. $6,598.46
d. $7,208.18
e. $4,311.02
Graser Trucking has $25 billion in assets, and its tax rate is 30%. Its basic earning power (BEP) ratio is 19%, and its return on assets (ROA) is 4%. What is its times-interest-earned (TIE) ratio?
You find a bond with 15 years until maturity that has a coupon rate of 8.0 percent and a yield to maturity of 7.1 percent. Suppose the yield to maturity on the bond increases by .25 percent. What is the new price of the bond using duration? What is t..
Morales Publishing’s tax rate is 40%, its beta is 1.10, and it uses no debt. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk-free rate is 5.0% and the market risk premium is 6.0%, how much is th..
Suppose bond A has 20 years left to maturity, an 8% coupon rate, pays interest semi-annually, and has a 6% yield to maturity and bond B has 25 years left to maturity, a 5% coupon rate, pays interest semi-annually, and has a 7% yield to maturity. What..
Walmart is considering opening a small experimental store in New York City. A store is expected to have a long economic life, but the valuation horizon is 15 years. The store in New York is likely to generate revenues of $34M in the first year and th..
A project currently generates sales of $10 million, variable costs equal to 50% of sales, and fixed costs of $2.1 million. The firm’s tax rate is 40%. The project will last for 10 years. The discount rate is 11%. What is the effect on project NPV, if..
Chamberlain Corp. is evaluating a project with the following cash flows. The company uses a discount rate of 10 percent and a reinvestment rate of 7 percent on all of its projects. Year Cash Flow 0 –$ 15,400 1 6,500 2 7,700 3 7,300 4 6,100 5 – 3,500...
Colt Systems will have EBIT this coming year of $33 million. It will also spend $14 million on total capital expenditures and increases in the net working capital, and have $8 million in depreciation expenses. Colt is currently an all equity firm wit..
The company is some what unsure about the assumption of a growth rate of 3 percent in its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on investment?
A company issued a bond with the following conditions: Sales price = SEK 1000, strike price = 1100 SEK , coupon = 80 and the number of outstanding year for the bond is 10. Calculate and answer what the bond is worth.
Draw the payoff of each of the following portfolios in a diagram where the horizontalaxis is the share price of ABC and the vertical axis is the payoff. Buying one put option and one call option on ABC, both with strike price$40 and expiration next p..
Suppose your firm needs to raise $10.5 million to construct a new shipping terminal. As CFO, you plan to raise funds in the following manner: a. 60% of the funds will be raised by selling long term debt (bonds) b. 40% of the funds will be raised by r..
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