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A building contractor is evaluating two alternatives for improving the exterior appearance of a small commercial building that he is renovating. The building can be completely painted at a cost of $2, 800. The paint is expected to remain attractive for 4 years, at which time repainting is necessary. Every time the building is repainted, the cost will increase by 20% over the previous time.
As an alternative, the building can be sandblasted now and every 10 years at a cost 40% greater than the previous time. The remaining life of the building is expected to be 38 years. The MARR is 10% per year. What is the maximum amount that can be spent now on the sandblasting alternative for the two alternatives to just break even? Use present worth analysis to solve this problem.
Consider the following binomial option pricing problem involving an American call. This call has two periods to go before expiring. Its stock price is 30, and its exercise price is 25. The risk free rate is .05, the value of u is 1.15, and the value ..
Consider a one-step binomial model for a stock. Now, the stock is worth S0, but will be worth either S0u or S0d at time T where d
Which of the following best describes the risk measure known as beta? Western Electric has 23,000 shares of common stock outstanding at a price per share of $57 and a rate of return of 14.2 percent. What is the firm's weighted average cost of capital..
Mary has the opportunity to buy the following cash flows per year beginning next year: 1) $1,000; 2) $1,000; 3) $1,000; 4) $1,000; 5) $1,000; 6) $1,000; 7) $1,000; 8) $1,000; 9) $1,000; 10) $1,000. If she can invest any funds to earn 6.35%, what is t..
January 1, 2011, Gonzalez Corporation issued $44,511 10% 14-year bonds at 103. Gonzalez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).
Sam wants to start a small commercial bakery to supply gourmet deserts to local restaurants. He believes that with his product line and his connections in the restaurant business, he can grow the business over the next five years into a profitable ni..
Currently has one bond issue outstanding. This bond pays a coupon rate of 10% ($100 p/yr) and matures in 5 years, and has a par value of $1,000. If you require a 14% rate of return. What percentage increase in value would occur for each bond due to t..
A stock is trading at $90 per share. The stock is expected to have a year-end dividend of $2 per share (D1 = $2), and it is expected to grow at some constant rate g throughout time. The stock's required rate of return is 16% (assume the market is in ..
A contractor must choose between buying or renting a crane for the duration of a 4 year construction project. The contractor uses an MARR of 8%. The crane costs $500,000 and can be sold for $350,000 after 4 years. Determine the incremental benefit-co..
Chrysler, the automotive manufacturer, had a beta of 1.05 in 1995. It had $13 billion in debt outstanding in that year and 355 million shares trading at $50 per share. The firm had a cash balance of $8 billion at the end of 1995. The marginal tax rat..
An insurance policy is considered analogous to an option. From a policyholder's perspective, what type of option is an insurance policy? Why? One thing put-call parity tells us is that given any three of a stock, a call, a put, and a T-bill, the four..
The common stock of Kyocera currently sells for $88.50 and its current dividend is $1.10. Estimate the growth rate for Kyocera assuming that an investor’s required rate of return is 14% and the earnings and dividends are expected to grow at a constan..
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