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You are considering buying an oil field. If you buy the field, you can extract the oil in one year. There are 100 barrels of oil that can be extracted from the field; the cost of doing so is $4, 000. You expect the price of oil in, one year to be $50/barrel. If your discount rate is 15%, how much are you willing to pay for the field? Assume that you are going to drill in one year no matter what the price of oil turns out to be-that is, ignore real options.
What is the Macaulay duration of a 5.6 percent coupon bond with ten years to maturity and a current price of $1,057.70? What is the modified duration? (Do not round intermediate calculations. Round your answers to 3 decimal places.)
In response, Santa Monica increased its expected cash flows by 20% but did not adjust the discount rate applied to the project. Should the discount rate be affected by the change in political conditions?
Jack and Hope are thinking of purchasing a house. The house costs $320,000 and they have saved $80,000 as a down payment. The rest will be secured by a mortgage. Calculate the monthly payments if they are made at the beginning of the month rather tha..
John Co. issues a series of bonds with a par value of $1,000 and a maturity of 10 years. The bonds pay interest based upon an annual fixed coupon rate of 6%, but coupon payments are made on a semi-annual basis. What price will one John Co. bond sell ..
Erin invests $3750 spread across three funds; Fund A, Fund B, and Fund C. Over the course of the following year, A(in dollars) was equal to %20 of the total return from all three funds fir the year. The amount invested in Fund B was equal to 1.2 time..
Two mutually exclusive alternatives are being considered for pollution control equipment. The study period is 9 years. If alternative A is selected, a portable system would be leased for the last 4 years at a cost of $10,000 per year including all ex..
Explain DFD & Data Dictionary? Explain in detail how the information requirement is determined for an organization? What is MIS? Define the characteristics of MIS? What are the basic functions of MIS? Give some disadvantage of MIS? Explain Knowledge ..
Suppose that an investor owns 10% of the stock of firm L, and assume that this investor can lend and borrow at the same interest rate as firm L, that is, at 12% (recall the assumption of perfect markets). Based on the trade-off theory of capital stru..
Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $168, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $163, the pric..
A company would like to invest in a capital budget project that will be worth $500,000 in 40 years. How much should the company invest today, assuming an average inflation rate of 2% and a 10% annual return?
The capital budgeting director of Sparrow Corporation is evaluating a project which costs $200,000, is expected to last for 10 years and produce after-tax cash flows, including depreciation, of $44,503 per year. If the firm's required rate of return ..
A 68 year old taxpayer has $20,000 in Social Security income and $100,000 in tax free municipal bond income, Does the municipal bond income affect the amount of social security the taxpayer must include in income?
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