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A firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. You were hired to advise the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose?
WACC: 6.00%Year 0 1 2 3 4
CFS -$1,025 $380 $380 $380 $380CFL -$2,150 $765 $765 $765 $765
a. $188.68b. $198.61c. $209.07d. $219.52e. $230.49
A corporate bond with a 7.100 percent coupon has eleven years left to maturity. It has had a credit rating of BB and a yield to maturity of 8.9 percent. The firm has recently become more financially stable and the rating agency is upgrading the bo..
If the school district receives all funding immediately after the passage of the bond and can invest the funds at a rate of 3.75% per year, how large must the bond be for the district to have $45,000,000 at the start of construction?
Portfolio Expected return of 12.3%. THe portfolio has two stocks and one risk free security. THe Expected return on stock x is 9.7% and stock y is 17.7%. THe risk free rate is 3.8%. The portfolio value is 78,000, of which 18,000 is the risk free s..
Either machine must be replaced at the end of its life with an equivalent machine. Which is the better machine for the firm? The discount rate is 10% and the tax rate is zero.
Create an equally weighted portfolio of five computer software stocks. Is such a portfolio a diversified portfolio? What is the beta of the portfolio? What is the expected return of the portfolio?
Jacob has an opportunity to invest in new retail development in his building. The initial investment is $50,000 & expected cash-flows are as follows: Year 1: $2,500 Year 2:
Calculation of a proposal to buy a new milling machine using NPV and What is the net cost of the machine for capital budgeting purposes
The holders of ZZZ Corporation's bond with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $25.00. What is the conversion price?
I need help understanding what the effects the housing crash in the United State had on:
what is the expected return on them? Assume that interest compounds semiannually on similar coupon paying bonds.
a) A bond issued in the United States pays coupons four times per year (thus, pay coupons quarterly). It has a 20-year maturity, its annual coupon rate is 8 percent, and it is selling to yield 6 percent. What is the current price of the bond?
What is the time value of money, and how does it apply to this condition? What is weighted average cost of capital, and how does it impact decision to expand your division? What is marginal cost of capital, and how does it impact decision to expand y..
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