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Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of $15,000 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $7,000 and $12,000 at the end of Years 1 and 2, respectively?. In addition, Project S can be repeated at the end of Year 2 with no changes in its cash flows. Project L has an expected life of 4 years. Each project has a WACC of 9%. What is the equivalent annual annuity of the most profitable project? Show your detailed calculation steps.
The portfolio you manage is holding $5 million of treasury bonds with a 7% coupon rate and 5 years to maturity with a price of $98 (per $100 face value). To hedge the interest-rate risk on these bonds over the coming year, should you buy call or put ..
It requires that all projects have a positive net present value when cash flows are discounted at 10 percent and that all projects have a payback no longer than three years. Which project or projects should the firm accept? Why?
A flexible short-term financial policy will tend to have more of which of the following than a restrictive short-term financial policy will? I. uncollectable accounts receivable II. work stoppages for lack of raw materials III. carrying costs IV. obs..
Bob bought some land costing $15,440. Today, that same land is valued at $44,917. How long has Bob owned this land if the price of land has been increasing at 6 percent per year?
If the rate of return for preferred stock goes up, for example because the market has become more risky, the price of preferred stock goes down.
Suppose you buy a 6.6 percent coupon bond today for $1,110. The bond has 7 years to maturity. What rate of return do you expect to earn on your investment? Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. W..
According to the Capital Asset Pricing Model, the introduction of a risk-free asset renders the efficient frontier of efficient portfolios linear. How many portfolios of risky assets (portfolios of only risky assets) lie on the resulting Capital Mark..
You have just bought a 5 year 10% annual coupon bond with a par value of $1000 at a price of $963.04. Immediately after you bought the bond, the market interest rate changed to 8% per year. If the interest rate does not change from this level for the..
You want to buy a new sports coupe for $83,500, and the finance office at the dealership has quoted you a 6.5 percent APR loan for 60 months to buy the car. What will your monthly payments be? What is the effective annual rate on this loan?
A stock has a beta of 1.14, an expected return of 13.38 percent, and lies on the security market line. A risk-free asset is yielding 2.84 percent. Ferghus wants to create a $15,000 portfolio that is comprised of these two securities and that will hav..
We notice that the current one-year Treasury rate (1R1) is 7% and the two year treasury rate (1R2) is 7.5%. If economists expect the one-year rate next year to be 5.4%, what is the liquidity premium next year if the liquidity premium theory holds?
Christina has been saving $14,500 a year ever since she started to work. She has earned an average return of 10.16 percent and now has a total of $272,629 in her savings account. How many years has it been since Christina first started saving money?
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