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Romboski, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 60,000 −$ 60,000 1 36,000 23,000 2 30,000 27,000 3 21,000 32,000 4 14,000 25,000 Requirement 1: (a) What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Internal rate of return Project A % Project B % (b) If you apply the IRR decision rule, which project should the company accept? Requirement 2: (a) Assume the required return is 11 percent. What is the NPV for each of these projects? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Net present value Project A $ Project B $ (b) Which project will you choose if you apply the NPV decision rule? Requirement 3: (a) Over what range of discount rates would you choose Project A? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Project A @ % (b) Over what range of discount rates would you choose Project B? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Project B @ % (c) At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Discount rate %
You are bullish on GE and expect a rise in its share price in one year. Since you have only $10,000 available, you want to get a margin loan. The annual interest rate on margin loan is 4% and your broker requires a maintenance margin of 35%. If you b..
Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN
A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond (give me a percentage change) if the market yield rises to 6% from the current yield of 4.5%?
Great Wall Pizzeria issued 11-year bonds one year ago at a coupon rate of 6.8 percent. If the YTM on these bonds is 9 percent, what is the current bond price?
App Store Co. issued 16-year bonds one year ago at a coupon rate of 7.7 percent. The bonds make semi-annual payments. If the YTM on these bonds is 5.4 percent, what is the current bond price? (Do not round intermediate calculations. Round your answer..
Suppose VS's stock price is currently $20. In the next six months it will either fall to $10 or rise to $30. What is the current value of a put option with an exercise price of $15? The six-month risk-free interest rate is 5% (periodic rate).
Union Brick Inc. (UBI) has a total market value of $200 million, consisting of 2 million shares of common stock selling for $50 per share and $100 million of 10 percent perpetual bonds currently selling at par. UBI pays out all earnings as dividends,..
A machine at a bottling plant that has a first cost of $150,000, operating and maintenance costs of $17,500 per year, and an estimated net salvage value of $25,000 at the end of thirty years. Assume an interest rate of 8%. What is the present equiv..
Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expects to live for 25 years after he retires, that is, until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he..
A project that provides annual cash flows of $17,300 for nine years costs $79,000 today. What is the NPV for the project if the required return is 8 percent?
Suppose that firm A is considering entering a business similar to firm B, a relatively small firm in a single line of business. Firm A is currently financed with 65 % debt and 35 % equity. Firm B, the pure-play firm, has a β of 0.85 and is financed w..
Does your current organization (or an organization you have worked for in the past,) exercise good financial planning and control? Can it be improved? How? Why? Be prepared to cite real life examples as evidence.
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