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You can choose any one of the following prizes. If your discount rate is 13% (annual compounding), which is the most valuable prize, i.e. has the greatest present value? A perpetual stream of annual payments of $1,000 starting in one year. A lump sum payment of $10,000 today. Five annual payments of $2,800 - the first payment occurs one year from today. A perpetual stream of annual payments starting at $500 in one year and increasing at 5% per year thereafter. A lump sum payment of $25,000 at the end of 10 years.
Flashback Corporation is evaluating an extra dividend versus a share repurchase. In either case, $32,500 would be spent. Current earnings are $2.90 per share, and the stock currently sells for $81 per share. There are 5,000 shares outstanding. Ignore..
Preferred shareholders are granted:
Your firm needs a machine which costs $120,000, and requires $27,000 in maintenance for each year of its 7 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 7 year class life category. Assume a tax rate of 40% ..
Unsophisticated capital budgeting techniques do not: a. examine the size of the initial outlay b. take into account unconventional cash flow patters c. explicitly consider the time value of money d. use net profits as a measure of return
You want to borrow $150,000 to start a new business. A bank will lend the money at 12.68% annual interest with annual payments for 15 years. What will be the interest expense for the first year?
Assume that the U.S. interest rate is 7% while the interest rate on the euro is 11%. If euros are borrowed by a U.S. firm, they would have to _______ against the dollar by about _______ in order to have the same effective financing rate (break-even) ..
You have $18,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 16 percent and Stock Y with an expected return of 11 percent. Assume your goal is to create a portfolio with an expected return of 12.10 percent. Req..
Stone Sour, Inc., has a project with the following cash flows: Year Cash Flow 0 –$ 27,500 1 11,500 2 14,500 3 10,500 The required return is 16 percent. What is the IRR for this project?
If Campbell were to purchase a nw warehouse for $1.2 million and finance it entirely with long-term debt, what would be the firm's new debt ratio?
Suppose you know that a company’s stock currently sells for $65.30 per share and the required return on the stock is 9 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield. If the ..
Boehm Incorporated is expected to pay a $1.30 per share dividend at the end of this year (i.e., D1 = $1.30). The dividend is expected to grow at a constant rate of 4% a year. The required rate of return on the stock, rs, is 15%. What is the value per..
INGORE effect of taxes. Additionally assume all dollar amounts and discount rates are REAL. Today at age 45, Ken is meeting his financial advisor, Barbie, to set up a retirement plan. Ken is currently making $12,000 per month. How much does he need t..
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