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Your company's weighted average cost of capital is 11 percent. it is planning to undertake a project with an internal rate of return of 14%, but you believe this project is not a wise investment. What logical arguments would you use to convince your boss to forego the project despite its high rate of return? Is it possible that making investments with returns higher than the firm's cost of capital will destroy value? If so, how?
Sasha is bartending at The Right Round, a nearby pub, because her new song isn’t selling very well. She sees Joe-Lo, a regular customer at The Right Round, is clearly intoxicated. He asks her for one more round of drinks before he leaves. Did defenda..
Suppose Mr. Thomas, president of your company, has hired you to determine the firm's cost of debt and the cost of equity capital. Based on his analysis, Mr. Thomas is recommending that the company increase its use of equity financing because "debt co..
A 25-year bond was issued eight years ago. The bond pays an annual coupon rate (once a year) of 8.75%. Currently, the bond sells for $1,210. What is the current market rate on this bond?
(Capital Asset Pricing Model) CSB, Inc. has a beta of 0.765. If the expected market return is 10.5 percent and the risk-free rate is 3.5 percent, what is the appropriate expected return of CSB ( using the CAPM)? The appropriate expected return of CSB..
Weir Incorporated has sales of $200,000 and accounts receivable of $18,500. You can easily show that its DSO is well over the industry average of 27 days. Suppose that it speeds up collection, matches the industry average, and manages to earn 8% inte..
Suppose 90-day investments in Europe have a 5% annualized return and a 1.25% quarterly (90-day) return. In the United States, 90-day investments of similar risk have a 7% annualized return and a 1.75% quarterly return. In today’s 90-day forward marke..
Sample Statement of Cash Flows. The Statement of Cash Flows on page presents how changes in Balance Sheet accounts will affect a company’s cash balance. Refer to that information and discuss how an increase in your company's accounts payable from one..
A stock is expected to pay the following dividends: $1.10 in 4 years, $1.70 in 5 years, and $1.75 in 6 years, followed by growth in the dividend of 5% per year forever after that point. There will be no dividends prior to year 4. the stock's required..
Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $122,000 (CF0 = -122,000), and produces positive after-tax cash inflows of $30,000 a year at the end of each of the next six years. Compute the equivalent ..
Say you own an asset that had a total return last year of 11.3 percent. If the inflation rate last year was 6.1 percent, what was your real return?
A year ago the Euro was trading for 1.357 USD per Euro. Today the Euro is trading at 1.125 USD per Euro. if a German investor bought an ounce of gold a year ago for $1300 and sold it today for $1200 how many Euros would he have today? Did the change ..
layla has owned her home for 12 years and expects to live in it for 5 more years. she originally borrowed $200,000 at 5% for 30 years to buy the home. She still owes 130,000 on the loan. Interest rates have fallen to 4% and Layla is considering refin..
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