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1. It’s time to build a new call center. It looks like the center will cost $10.5 million to build and generate cash flows of $2 million the first year, $3 million per year for the next two years, $4 million per year for the following two years, and $2 million in its final year of operation. If your required return is 12%, what is the NPV of building the new center?
A. $0.201 million
B. -$0.510 million
C. $22.638 million
D. $1.638 million
2. The consulting firm your boss hired has said that you should invest $1 million into a new personnel management system that will reduce your overhead costs by $200,000 per year for the first three years, then $400,000 the next year, and $500,000 in the final year. If your firm has a required return of 15%, what is the IRR of the new system?
A. 12.62%
B. 19.42%
C. 9.57%
D. 18.04%
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The current price of a stock is $84, and three-month European call options with a strike price of $85 currently sell for $4.20. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2..
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Daniel believes that a chemical company is responsible for contaminating some land that he owns. He files suit against the chemical company. Rather than have the case go to court, the chemical company's attorney suggests arbitration to resolve th..
Calculate the modied duration and convexity of the bond in (1). You can use the approximation formulas from class.
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