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Suppose we can create two products: A and B; A and B are mutually exclusive to each other. The price of both products is $4 in real terms. The Sales Volume for product A is 5 million units yearly, and for product B is 10 million yearly. In real terms per unit, for product A would be $1.5 and for product B would be $1.70. Assume inflation rates here is 5%. Further, suppose product A need investments of $10.2 million and product B needs investment of $ 12 million. Both products A and B are depreciated straight-line down to zero in 3 years,the product B line will have a $ 1000 in real terms after year 3. The real discount rate is 13% and the corporate tax rate is 34%.
Question
1) Which product is financially preferable? Shall calculation to support.
2) Please give a case-related example of both sunk and opportunity costs.
3) When should company-specific risks not to be reflected in the discount rate applied.
4) Please give three relevant examples of real options that can be applicable here.
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You will document your understanding and learning relative to the course requirements as summarized in the course description. This must include how you will or could use the learning in your personal and/or professional decision making.
Assume a 16-year, $250,000 mortgage with a rate of 5.8 percent. 9 years into the mortgage, rates have fallen to 4.8 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate?
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A Treasury bond with the longest maturity (30 years) has an ask price quoted at 98:09. The coupon rate is 3.80 percent, paid semi-annually. What is the yield to maturity of this bond?
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