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A project costs $10,000 to pursue today and generates pre-tax savings of $1,500 per year for the foreseeable future. The marginal tax rate is 35%. The proect also requires an initial NWC investment of $300 which will not be recouped.
A) If the required return is 8%, what is the NPV?
B) What is the IRR? (NOTE: this does NOT require guess and check)
Define and discuss the concepts of risk and return. Also discuss the importance of portfolio diversification and its relationship to risk and return.
Stanford Simmons, who recently sold his Porsche, placed $10,000 in a savings account paying annual compound interest of 6 percent. Calculate the amount of money that he will have accrued if he leaves the money in the bank without making any additiona..
Frey Corp. is experiencing rapid growth. Dividends are expected to grow at 25 percent per year during the next three years, 15 percent over the following year, and then 7 percent per year indefinitely. The required return on this stock is 12 percent,..
What is a Financial Intermediary? What are some of the financial products that we as consumers can use from Financial Intermediaries?
You currently have 25 and want to retire at the age of 65. As a complement to other sources of retirement, you could deposit $ 3,000 at the end of each year in an IRA. This financial instrument would earn 9.75% over the next 40 years. a) How much mon..
Consider two mutually exclusive projects with the following cash flows: Project S is a 4 year project with initial (time 0) cash outflow of 3000 and time 1 through 4 cash inflows of 1500, 1200, 800 and 300 respectively. Project L is a 4 year project ..
You buy a(n) 6% coupon, 10-year maturity bond for $955. A year later, the bond price is $1,080. Assume coupons are paid once a year and the face value is $1,000. What is the new yield to maturity on the bond. What is your bond's rate of return over t..
Assume that you have just purchased a 3-year bond that is red empted at par with face value $1,000 and pays coupons semi-annually with annual rate 8%. If the bond is currently trading at a yield of 6%. Compute Its current price. Its current yield to ..
Irone Industries has a beta of 0.8. If the return on the market is 16% and the return on treasury bills is 5%, what is Irone Industries’ expected return and risk premium?
On May 10, a company issued for cash 2,000 shares of no-par common stock (with a stated value of $4) at $17, and on May 15, it issued for cash 3,000 shares of $17 par preferred stock at $61. Journalize the entries for May 10 and 15, assuming that the..
Mullineaux Corporation has a target capital structure of 65 percent common stock, 5 percent preferred stock, and 30 percent debt. Its cost of equity is 11 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 7 percent. Wh..
Risk COLLAPSE From a borrower’s standpoint “short-term credit is generally riskier than long-term credit” (Brigham & Ehrhardt, 2013). Short term credit, even if it does have better rates than the long term alternative, would still require higher paym..
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