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Suppose you own a share of stock that is expected to pay out $100 in dividends at the end of each of the next 30 years. First, write out an expression for the present value of this stream of income, then find the present value using the tools we developed in class.
Consider the following investment options: Option 1: invest $100 now and get back $60 in six months $75 in a year, and $90 in 18 months Option 2: invest $75 now and get back $10 per month at the end of each of the next 18 months a. If the monthly interest rate is 0.80%, calculate the net present value of each option? b. Which option would you choose first if your objective was to maximize the net present value of your investments? Explain why. c. Which option would you choose first if your objective was to maximize the net present value of your investments per dollar spent? Explain why.
Consider the problem of whether or not to buy or lease a new piece of equipment. You know you only need it for 3 years, and you can purchase it or lease it. ? The lease requires a down-payment of $2,000 upon signing the lease and then a monthly payment of $560 due at the end of each month for the next 5 years. At the end of the lease the equipment goes back to the dealer. ? If you purchase the equipment you buy it for $35,000 in cash, and at the end of the 5 years you will sell the equipment for $5,000. Assume the monthly interest rate is 0.5%. Calculate the present discounted value (cost) of your options of leasing or buying this piece of equipment. Which option should you take?
Your broker is offering you two bonds issued by two U.S. companies. Calculate the price of each bond, assuming coupons are paid annually.
The current stock price for a company is $49 per share, and there are 3 million shares outstanding. The beta for this firms stock is 1.4, the risk-free rate is 4.1, and the expected market risk premium is 6.2%. what is the Weighted Average Cost of Ca..
What is the firm's after-tax component cost of debt for purposes of calculating the WACC?
The present price of a stock is 50. The market value of a European call with strike 47.5 and maturity 180 days is 4.375.
What would you recommend to the CFO (Chief Financial Officer) if we suppose that he has concern about the cost of borrowing and that he would choose the financing scheme that minimizes the amount of interest paid on the financing period?
The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value bonds with a 15 year maturity at a price of $951 that carries a coupon interest rate of 13.8 percent that ..
Jane purchased her first home for $95,000. She made a down payment of 20% and financed the rest at 8% for 20 years. Find her monthly payment by both the formula method and the table method.
Sodaco is considering producing a new product: Chocovan soda. Sodaco estimates that the annual demand for Chocovan, D(in thousands of cases), has the following mass function: P(D 30) .30, P(D 50) .40, P(D 80) .30. Considering the reward for each acti..
What was the 2011 free cash flow? $ How would you explain the large increase in 2011 dividends? explains the large increase in 2011 dividends.
Once a strategic asset allocation is in place, an investor can make “tactical” adjustments to take advantage of market opportunities or to avoid risks. Which of the following is not an example of tactical shifts:
Factoring and leasing are traditional financial products that are being marketed to corporations. Compare and contrast these two banking products.
An investment will pay $2,566 two years from now, $2,243 four years from now, and $2,639 five years from now. If the opportunity rate is 6.98 percent per year, what is the present value of this investment?
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