Reference no: EM131185070
An investment pays $500 per year for the first 4 years, $400 per year for the next 3 years, and $700 per year the following 8 years (all payments are at the end of each year). If the discount rate is 10.00% compounding quarterly, what is the fair price of this investment? I know the solution is ( $4082.37) but can you show me how they came up with this answer?
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Specializes in buying deep discount bonds
: Lance Whittingham IV specializes in buying deep discount bonds. $1,00 par value with semi annual interest payment, has 4% interest rates, 16 years to maturity. Current YTM is 10%. a)Current price of bond b)Percent increase of bond now to maturity C) ..
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The expected rate of return on delaware shores
: The expected rate of return on Delaware Shores, Inc. stock is based on three possible states of the economy. These states are boom, normal, and recession which have probabilities of occurrence of 20 percent, 75 percent, and 5 percent, respectively. W..
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Flotation adjustment represents flotation cost adjustment
: If a firm plans to issue new stock, flotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for flotation costs. The first approach is to add the sum of flotation costs for the debt, preferred, and..
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Would you recommend the merger?
: Benson Oil is being considered for acquisition by Dodd Oil. The combination, Dodd believes, would increase it cash inflows by $ 25,000 for each of the next 5 years and by $ 50,000 for each of the following 5 years. Benson has high financial leverage,..
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What is the fair price of this investment
: An investment pays $500 per year for the first 4 years, $400 per year for the next 3 years, and $700 per year the following 8 years (all payments are at the end of each year). If the discount rate is 10.00% compounding quarterly, what is the fair pri..
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What is best estimate of the current stock price
: The XYZ Company paid $2 dividend yesterday. Its dividend growth rate is expected to be constant at 14.50% for 2 years, after which dividends are expected to grow at a rate of 4.20% forever. Its required return (rs) is 12.60%. What is the best estimat..
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What will the interest deduction in tax return
: On January 1, 2012, your brother's business obtained a 30-year amortized mortgage loan for $250,000 at a nominal annual rate of 4.35%, with 360 end-of-month payments. The firm can deduct the interest paid for tax purposes. What will the interest dedu..
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Manufactures time series photographic equipment
: Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt−equity ratio of .8. It’s considering building a new $48 million manufacturing facility. This new plant is expected to generate after..
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Management expects the machinery to produce cash flows
: Quebec, Inc., is purchasing machinery at a cost of $4,310,720. The company’s management expects the machinery to produce cash flows of $892,410, $1,094,160, and $1,927,150 over the next three years, respectively. What is the payback period?
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