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You are thinking about investing $5,071 in your friend's landscaping business. Even though you know the investment is risky and you can't be sure, you expect your investment to be worth $5,649 next year. You notice that the rate for one-year Treasury bills is 1%. However, you feel that other investments of equal risk to your friend's landscape business offer an expected return of 9% for the year. What should you do?
A. What is the present value of the return? (Rounded to nearest cent)
The Retarded Company’s dividends are declining at an annual rate of 6 percent. The company just paid a dividend of $4 per share. You require a 16 percent rate of return. How much will you pay for this stock? The last dividend on Riverhawk Corporation..
Federal income tax on investment income and capital gains of a mutual fund
A company is building a fuel efficient power plant which will generate its first annual cash flow of $18m exactly 4 years from today. As it ages, the volume it produces will remain constant but competing new technologies will drive prices down furthe..
A zero coupon bond matures in 5 years with a par value of $1000 and is currently selling at YTM of 8%. What would be the approximate price of this bond if required rate of return drops to 6% using duration and convexity formula? What is the actual pr..
Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?
Which of the following statements about the "payback method" is true?
The Shakey Company can finance the purchase of a new building costing $2 million with a bond issue, for which it would pay $100,000 interest per year, and then repay the $2 million at the end of the life of the building. Use AW analysis based on equi..
Why is the capital budgeting decision crucial and important for a firm? State why the capital budgeting errors are so costly? Suntex Berhad is considering a major expansion of its production line and has estimated the following free cash flows associ..
Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: A 6 percent semi-annual coupon bond a..
Emerson Equine Supplies earned $72,000 in 2012 and pad dividends of $44,640. The firm had equity of $150,000 at the beginning of the year. At the end of the year, the company had total assets of $195,000. During the year, the company sold no new equi..
A portfolio manager in charge of a portfolio worth $8 million is concerned that the market might decline rapidly during the next six months and would like to use options on the S&P 100 to provide protection against the portfolio falling below $7 mill..
Consider a 3-month European put option on a non-dividend-paying stock, where the stock price is $60, the strike price is $60, and the risk-free rate is 3% per annum. Suppose that put options on a stock with strike prices $45 and $55 cost $4 and $9, r..
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