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Your firm is contemplating the purchase of a new $850,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5 year life. It will be worth $75,000 at the end of that time. You will save $320,000 before taxes per year in order processing costs and you will be able to reduce working capital by $105,000 (this is a one-time reduction). If the tax rate is 35%, what is the IRR (internal rate of return) for this project (hint…you need to first acquire OCF…operating cash flow)
Sheaves Corp. has a debt−equity ratio of .85. The company is considering a new plant that will cost $101 million to build. When the company issues new equity, it incurs a flotation cost of 7.1 percent. The flotation cost on new debt is 2.6 percent. W..
Present and critically comment on the following risk-adjusted measures of hedge fund performance
If you deposit $4,000 at the end of each of the next 20 years into an account paying 9.7 percent interest, how much money will you have in the account in 20 years? How much will you have if you make deposits for 40 years?
A stock is expected to pay a dividend of $1.50 per share in 2 months and 5 months. The stock price is $50, risk free rate is 8%. An investor has taken a long position in a 6 month forward contract on a stock Three months later the price of the stock ..
Why does market efficiency matter - Efficient markets: definition and Implications and behavioral finance: the challenge to efficient markets
An investor bought stock in a company for $10,000. Five years later, the investment (including reinvested dividends) was worth $8,000. The investor's geometric average return was:
What is the present value of $1,825 per year, at a discount rate of 9 percent, if the first payment is received 8 years from now and the last payment is received 24 years from now?
An investor in the 28 percent tax bracket is trying to decide which of two bonds to purchase. One is a corporate bond carrying an 8 percent coupon and selling at par. The other is a municipal bond with a 5.5 percent coupon, and it, too, sells at par...
Fee Founders has perpetual preferred stock outstanding that sells for $40.00 a share and pays a dividend of $5.00 at the end of each year. What is the required rate of return?
Slash and Burn Construction Company currently has no debt and expects to earn $12 million in net operating income each year for the foreseeable future. The required return on assets for construction companies of this type is 12.5%, and the corporate ..
Dinklage Corp. has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate..
Professor’s Annuity Corp. offers a lifetime annuity to retiring professors. For a payment of $70,000 ("present value") at age 65, the firm will pay the retiring professor $350 a month until death. If the professor’s remaining life expectancy is 20 ..
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