NPV gives a profit (discounted revenues minus discounted costs) for a project. IRR gives the rate of return on the initial investment a project produces. Both are rational criteria, but depending on the situation one may give a clearer picture of the opportunities of a project compared to the other. Discuss with examples to support your arguments.

Emperor’s Clothes Fashions can invest $4 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 5 million jars of makeup a year. Fixed costs are $3.7 million a year, and variable costs are $2.40 per jar. The product will be priced at $3.80 per jar. The plant will be depreciated straight-line over 5 years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 40%. a. What is project NPV under these base-case assumptions? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is NPV if variable costs turn out to be $2.60 per jar? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) c. What is NPV if fixed costs turn out to be $3.6 million per year? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) d. At what price per jar would project NPV equal zero? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Consider the following.

a. What is the duration of a two-year bond that pays an annual coupon of 9 percent and whose current yield to maturity is 14 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))
b. What is the expected change in the price of the bond if interest rates are expected to decrease by 0.2 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Zippen Industries 9.250% bonds mature August 2, 2028. The bond is callable August 2, 2019 at 5.125 call premium. The offer on the bond to settle August 2, 2015 is currently 107.884

The Yield to Maturity is %

and the Yield to Call is %

1.For project A in year 2, inventories decrease by €5000 and accounts payable increase by €1500. Accounts receivable remain the same. Calculate the increase or decrease in net working capital for year 2.

2. You would like to have enough money saved to receive $100000 per year in perpetuity after retirement for you and your heirs. How much would you need to have saved in your retirement fund to achieve this goal? (Assume that the perpetuity payments start one year from the date of your retirement. The annual interest rate is 5 percent.)

3. The market value of Cable Company's equity is $25 million and the market value of its debt is $15 million. If the required rate of return on the equity is 13 percent and that on its debt is 5 percent, calculate the company's cost of capital. (Assume no taxes.)

4. LOWTEC Sustainable AG is a German company specialized in energy-efficient technology for buildings. Given are the following estimated data for year 2017: Profit after taxes = €35 million; Depreciation = €28 million; Investment in fixed assets = $50 million; Investment net working capital = $4 million. Calculate the estimated free cash flow (FCF) for year 2017

5. The market value of Greenergy ltd equity is $130 million and the market value of its debt is $40 million. If the required rate of return on the equity is 18 percent and that on its debt is 5 percent, calculate the company's cost of capital. (Assume no taxes.)

Suppose an investor buys a call option on 45,000 barrels of oil with an exercise price of $51 per barrel and simultaneously sells a put option on 45,000 barrels of oil with the same exercise price of $51 per barrel. Her net payoff per barrel on these option contracts is _____ if the market price per barrel is $49 and _____ if the price per barrel is $55.

Josh and his new wife Samantha are buying their first house together. They secured a loan for $435,000 at a rate of 9.275% per year for 30 years.

SHOW FORMULAS USED

1)How much are the monthly payments?

2)6 years later, the couple decides they want to refinance their home. How much do they currently owe on the home?

3)The bank is offering a special deal of 6.35% on all home refinances. What would their new monthly payment be?

4)The couple is saving money for their first child. Now that they have refinanced their home, how much will the couple save every month?

5)The couple has made significant upgrades to their home which is currently valued at $575,000. Based on how much they owe at the time of refinance, how much equity do they have?

Gentry Can Company's (GCC) latest annual dividend of $1.25 a share was paid yesterday and maintained its historic 8 percent annual rate of growth. You plan to purchase the stock today because you believe that the dividend growth rate will increase to 9 percent for the next three years and the selling price of the stock will be $46 per share at the end of that time.

A: How much should you be willing to pay for the GCC stock if you require a 12 percent return? Do not round intermediate calculations. Round your answer to the nearest cent.

B: What is the maximum price you should be willing to pay for the GCC stock if you believe that the 9 percent growth rate can be maintained indefinitely and you require a 12 percent return? Do not round intermediate calculations. Round your answer to the nearest cent.

C: If the 9 percent rate of growth is achieved, what will the price be at the end of Year 3, assuming the conditions in Part b? Do not round intermediate calculations. Round your answer to the nearest cent.

A stock is currently priced at $35.00. The risk free rate is 3.2% per annum with continuous compounding. In 4 months, its price will be either $39.90 or $31.15.

Consider the portfolio with the following: long a European call with strike $39.00 expiring in 4 months; a short futures position on the stock with delivery date in 4 months and delivery price $40.00; a derivative which pays, in 4 months, three times the price of the stock at that time.

Using the binomial tree model, compute the price (or "value") of this portfolio.

Assume that a bank has assets located in Germany worth €210 million earning an average of 9 percent. It also holds €130 in liabilities and pays an average of 7 percent per year. The current spot rate is €1.50 for $1. If the exchange rate at the end of the year is €2.00 for $1:

a. What happened to the dollar? Did it appreciate or depreciate against the euro (€)?
b. What is the effect of the exchange rate change on the net interest margin (interest received minus interest paid) in dollars from its foreign assets and liabilities?
c. What is the effect of the exchange rate change on the value of the assets and liabilities in dollars?

As a business owner, financial decisions require careful planning and prioritizing, especially when large, capital-intensive purchases are involved. As you establish a process to achieve your company goals, you will need to demonstrate your math skills, consider different investment options, and describe how different investment vehicles can be used effectively to accomplish business goals.

You, as a small business owner, are interested in buying a lot for $38,000. You have a CD (certificate of deposit) worth $40,000 now, which earns 4% compounded annually and will mature in 3 years. You are thinking about cashing in the CD to purchase the lot, but cashing in the CD now means you will have to pay a withdrawal penalty of $500. You project the value of the lot will be $45,000 in 3 years and you intend to use it for immediate equipment storage purposes for your business.

For your main post, you will write an essay discussing what you, as a business owner, decide to do - buy or pass on purchasing the lot. In your essay you should address the following:

• Calculate how much your CD will be worth upon maturity.
• Explain the differences (pros and cons) between these two investment options.
• Prioritize and select the best option for your business and explain why that option is preferable.
• Discuss the potential impact this choice will have on the future of your business.

The Bruin Stock Fund sells Class A shares that have a front-end load of 4.90 percent, a 12b-1 fee of 0.40 percent, and other fees of 1.24 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.85 percent, and other fees of 1.24 percent. Assume the portfolio return is 9 percent per year.

a. What is the value of $1 invested in each share class if your investment horizon is 3 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What if your investment horizon is 20 years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

You are considering an investment in a mutual fund with a 5% front-end load and an expense ratio of 1.25%. You can invest instead in a bank CD paying 7% interest.

a. If you plan to invest for two years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. If you plan to invest for six years, what annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? Assume annual compounding of returns. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Now suppose that instead of a front-end load the fund assesses a 12b-1 fee of 1.50% per year. What annual rate of return must the fund portfolio earn for you to be better off in the fund than in the CD? (Do not round intermediate calculations. Round your answer to 2 decimal places.)