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1. How are Net Present Value (NPV) and Internal Rate of Return (IRR) related? Which is the better decision rule to follow for project selection or rejection? Why?
2. There have been two 'modifications' in discounted cash flow metrics. First, the Internal Rate of Return (IRR) has been revised giving a Modified Internal Rate of Return (MIRR). Second, the Profitability Index (PI) has been revised giving a Modified Profitability Index (MPI). Why were the IRR and the PI revised? When are these measures appropriate to use?
3. Some people take a position that the Return on Investment (RoI) is the appropriate measure or decision rule to use. Do you agree? Why or why not? How would the project's RoI be calculated?
First Simple Bank pays 8.3 percent simple interest on its investment accounts. First Complex Bank pays interest on its accounts compounded annually. What rate should the bank set if it wants to match First Simple Bank over an investment horizon of 13..
A project has the following estimated data: price = $89 per unit; variable costs = $33.82 per unit; fixed costs = $5,100; required return = 10 percent; initial investment = $11,000; life = seven years. Ignore the effect of taxes. What is the financia..
A. Butcher Timber Company hired your consulting firm to help them estimate the cost of equity. The yield on the firm's bonds is 10.50%, and your firm's economists believe that the cost of equity can be estimated using a risk premium of 3.85% over a f..
classify the following problems as to whether they are pure-integer mixed-integer zero-one goal or nonlinear
You are provided the following information of a firm's stocks and bonds along with other pertinent information. The stocks have a standard deviation of 50% and a correlation of 0.6 with the market index. What is the beta of the stock? What is the cos..
St. Johns River Shipyards's welding machine is 15 years old, fully depreciated, obsolete, and has no salvage value. However, even though it is obsolete, it is perfectly functional as originally designed and can be used for quite a while longer. The n..
the third of the primary principles of finance is known as valuation. this principle brings together the two other
Consider the following three bond quotes: a Treasury bond quoted at 105:27, a corporate bond quoted at 96.40, and a municipal bond quoted at 100.80. If the Treasury and corporate bonds have a par value of $1,000 and the municipal bond has a par value..
What is the present value of purchasing the car? What is the present value of leasing the car? What break-even resale price in four years would make you indifferent between buying and leasing?
Assume that a raiologist group practice ahs the folloiwng cost structure. Fixed costs: $500,000; Variable cost per procedure: $25; Charge (revenue) per procedure: $100. Furthermore, assume that the group expects to perform 7,500 procedures in the com..
Find the present value of $700 due in the future under each of these conditions: 10% nominal rate, semi annual compounding, discounted back 5 years. Why do the differences in the PVs occur?
IRS Suppose Company X is an international company and its client is requesting a 10-year $5,000,000 floating-rate loan. Company Y needs $5,000,000 to finance a 10-year project. X is an AAA-rated bank and Y is a BBB-rated company. Based on their borro..
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