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The internal rate of return:
A) is more reliable as a decision making tool than net present value when considering mutually exclusive projects.
B) is the discount rate that makes the net present value of a project equal to one.
C) is easier to apply than net present value when cash flows are unconventional.
D) will provide the same accept/reject decision as NPV when cash flows are conventional and projects are independent.
E) is influenced by daily changes in the market rate of interest.
You are a risk-averse investor who is considering investing in one of two economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together in good times all prices rise together..
You purchase a Treasury-bond futures contract with an initial margin requirement of 15% and a futures price of $114,550. The contract is traded on a $100,000 underlying par value bond. If the futures price falls to $107,300, what will be the percenta..
Brenda Callaway wants to borrow money to purchase some new appliances. The bank offered her a $1000 loan at 8 percent simple interest and an upfront service charge of $45. If she is required to pay the entire loan back at the end of one year, what is..
Calculate the present value of a growing perpetuity that makes one payment per year with the first payment, made in exactly one year from now, being $1000. Let the payments grow at an annual rate of 9.9 percent (g = .099).
You probably noticed that lease analysis seems a bit like capital budgeting analysis, because the cash flows are estimated over the life of the project or lease. The present value of the cash flows dictates the manager's decision. Are cash flows that..
Microtech Corporation is expanding rapidly and currently needs to retain all of its earnings; hence, it does not pay dividends. However, investors expect Microtech to begin paying dividends, beginning with a dividend of $1.50 coming 3 years from toda..
Based strictly on the calculations, which proposals should be accepted or rejected. Use the appropriate divisional discount rate. The net present value provides the answer directly while the internal rate of return must be compared to the discount ra..
When underwriters issue securities on a best efforts basis, they:
On December 1, 2008, Jolly Rice Company enters into a 90-day forward contract with a rice speculator to purchase 500 tons of rice at $1,000 per ton. Jolly Rice enters into this contract in order to hedge an anticipated rice purchase. Prepare the requ..
The present value of the following cash flow stream is $8,400 when discounted at 9 percent annually. What is the value of the missing cash flow?
Some advocates of behavioural finance agree with efficient market advocates that indexing is the optimal investment strategy for most investors. But their reasons for this conclusion differ greatly. Compare and contrast the rationale for indexing acc..
It is now January 1. You plan to make a total of 5 deposits of $600 each, one every 6 months, with the first payment being made today. The bank pays a nominal interest rate of 10% but uses semi annual compounding. You plan to leave the money in the b..
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