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1) The equivalent annual cost method is most appropriate in which of the following situations?
In each case, assume that several mutually exclusive options are available.
A) Introducing a new product line
B) Adding another store to a chain of retail stores
C) Installation of federally mandated safety equipment
D) Equipment to reduce production costs
2) If a project has a profitability index greater than 1,
A) the npv will also be positive.
B) the irr will be higher than the required rate of return.
C) the present value of future cash flows will exceed the amount invested in the project.
D) all of the above.
Dennis wants to determine if the discount rate really makes any difference in the net present value of a project. He feels that if a project is acceptable on one rate of return, it will be acceptable at all rates of return. To explain why his thinkin..
Bayou Okra Farms just paid a dividend of $3.30 on its stock. The growth rate in dividends is expected to be a constant 6 percent per year indefinitely. Investors require a return of 15 percent for the first three years, a return of 13 percent for the..
Explain how the Two-Stage Free Cash Flow to the Firm valuation method can be used to calculate firm value.
Compute the present value of $1,350 paid in three years using the following discount rates: 5 percent in the first year, 6 percent in the second year, and 7 percent in the third year Present Value?
A corporate bond has 20 years to maturity, a face value of $1,000, a coupon rate of 5.2% and pays interest twice a year. The annual market interest rate for similar bonds is 3%. What is the period discount rate? Make sure the discount rate matches th..
Cash flow projections are a central component to the analysis of new investment ideas. In most firms, the person responsible for making these projections is not the same person who generated the investment idea in the first place. Why?
fabco inc. is considering purchasing flow valves that will reduce annual operating costs by 10000 per year for the
Far Side Corporation is expected to pay the following dividends over the next four years: $11 in year 1, $8 in year 2, $5 in year 3, and $2 in year 4. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. I..
Stock is currently selling for $25. A 6-month call option on the stock has a strike price of $30 and sells for $.050. Calculate the exercise value of the option?
What is the primary benefit of the MACRS depreciation system over straight line
Assume that you have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 5.0% (constant). What is the cost of equity based on the Dividend Growth Model? ________ 8.06% 10.06% 11.41% 12.0%
Compute the fair value of a chooser option which expires aftern=10periods. At expiration the owner of the chooser gets to choose
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