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Part A: Solve each of the following problems. Each answer is worth 20 points.
1. Two mutually exclusive investments cost $10,000 each and have the following cash inflows. The firm's cost of capital is 10%.
Investment
Cash inflow
A
B
Year 1 -
Year 2-
$15,407
Year 3 -
Year 4 -
$19,390
A. What is the net present value of each investment?
B. What is the internal rate of return of each investment?
C. Which investment(s) should the firm make?
D. Would your answers be different to C if the funds received in Year 2 for investment A could be reinvested at 16%?Show your work.
An HMO has a point of service (POS) option for its members but will pay only 80 percent of approved charges. If a member goes out of network for a medical procedure with a charge of $2,000 of which $1,2000 is approved how much must the member pay.
Gruber Corp. pays a constant $9 dividend on its stock. The company will maintain this dividned for the next 12 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share price?
The company has the following independent investment projects available: Project Initial Outlay IRR 1 $100,0000 10% 2 $10,000 8.5% 3 $50,000 12.5%
During this time interest rates have fallen from 6% to 4%. How much will it cost the company to pay off their debt at this time?
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:
When the non-dividend paying stock price is $20, the strike price is $20, the risk-free rate is 5%, the volatility is 20% and the time to maturity is 3 months which of the following is the price of a European put option on the stock
The Pennington Corporation issued bonds on January 1, 1987. The bonds were sold at par, had 12% annual coupon, paid semi-annually, and mature on December 31, 2016. A) What was the yield-to-maturity on the date the bonds were issued?
Refer to Carroll Clinic's 2012 operating budget, contained in Exhibit 6.2. Instead of the actual results reported in Exhibit 6.3 or listed in Problem 6.3, assume the results
The firm spent $24,670 on fixed assets and decreased net working capital by $1,330. What is the amount of the cash flow to stockholders?
the genesis operations management team is now preparing to implement the operating expansion plan. previously the
A portfolio is invested 29.8% in Stock A, 10.9% in Stock B, and the remainder in Stock C. The expected returns are 14.6%, 24.5%, and 8.8% respectively. What is the portfolio's expected returns?
If the discount rate is 13 percent compounded monthly, what is the value of this annuity five years from now?
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