You’re considering investing in a 2-year 7% annual coupon bond priced at par. Alternatively, you’ll consider a 1-year 5% annual coupon bond priced at par and subsequently reinvesting all your proceeds in another identical 1-year bond. You expect the 1-year bond will yield 9% next year. Assuming you turn out to be right, which approach would generate the higher return?
In: Finance
A company is considering two investment options:
Calculate the internal rate of return for each option. Which investment option should the company select? (Show ALL CF entries in the tables below. Justify your answer.)
In: Finance
Project A Project B
Year 0 ($60,000) ($85,000)
Year 1 $20,000 $22,000
Year 2 $35,000 $25,000
Year 3 $20,000 $30,000
Year 4 $25,000 $25,000
Year 5 $15,000
Year 6 $10,000
Year 7 $10,000
Year 8 $10,000
Assume that, if needed, each project is repeatable with no change in cash flows. Your cost of capital is 13%.
In: Finance
The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=£840, year 2=£870, year 3=£900, and year 4=£970. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Round to the nearest 100th. Then, calculate the inflation rate between year1 and year 4 based on the first price index series. If you had used the other price index series, would you get a different inflation rate? If you are unsure, do the calculation and find out.
In: Economics
Shell is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 15% during the next 2 years, at 13% the following year, and at a constant rate of 6% during Year 4 and thereafter. Its last dividend was $1.15, and its required rate of return is 12%.
b) Find the PV of the firm’s stock price at the end of Year 3.
f) Calculate the dividend and capital gains yields for Years 1, 2, and 3.
Dividend Yield Year 1 = %
Capital Gains Yield Year 1 = %
Dividend Yield Year 2 = %
Capital Gains Yield Year 2 = %
Dividend Yield Year 3 = %
Capital Gains Yield Year 3 = %
In: Finance
1. Havana, Inc., has identified an investment project with the following cash flows. If the discount rate is 5 percent, what is the future value of these cash flows in Year 4? (Hint: Be careful with the number of periods.) If the picture doesn't load, the cash flows shown in the picture are as follows: 910 in year 1; 1140 in year 2; 1360 in year 3; and 2100 in year 4.
2. Havana, Inc., has identified an investment project with the following cash flows. If the discount rate is 9 percent, what is the future value of these cash flows in Year 5? (Hint: Be careful with the number of periods.) If the picture doesn't load, the cash flows shown in the picture are as follows: 910 in year 1; 1140 in year 2; 1360 in year 3; and 2100 in year 4.
In: Finance
You are evaluating a product for your company. You estimate the sales price of product to be $240 per unit and sales volume to be 11,400 units in year 1; 26,400 units in year 2; and 6,400 units in year 3. The project has a 3 year life. Variable costs amount to $165 per unit and fixed costs are $214,000 per year. The project requires an initial investment of $366,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $54,000. NWC requirements at the beginning of each year will be approximately 13% of the projected sales during the coming year. The tax rate is 30% and the required return on the project is 8%. What will the year 2 cash flows for this project be?
In: Finance
Suppose there is a mean-variance optimizer looking to
invest for two periods in bonds. They
can invest in a two year bond with annual yield y2 or they can
invest in the one year bond at r1 and then,
a year later, invest in another one year bond at currently
uncertain rate r2. What must be the liquiditiy
premium in order for them to be indifferent between the two
options?
Now suppose they are looking to invest for three years. What is the
liquidity premium to make them
indifferent between the three year bond or getting a two year bond,
then a one year bond after?
What if they want to invest for n years. Derive the liquidity
premium to make them indifferent between the
n year bond and the n − 1 year bond followed by a one year
bond.
In: Finance
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ABC Corp. is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,070,000 in annual sales, with costs of $765,000. The project requires an initial investment in net working capital of $290,000, and the fixed asset will have a market value of $265,000 at the end of the project. If the tax rate is 34 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3?
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If the required return is 13 percent, what is the project's NPV? |
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In: Finance
A stock just paid a dividend of $1, and is estimated to have a dividend growth rate of 25% and 10% in the next two years. The stock is estimated to settle down to a 4% constant dividend growth thereafter. The required return of investors is 12%. (Round your answer to two digits after the decimal point.) show your work
What is the dividend of year 1?
What is the dividend of year 2?
What is the dividend of year 3?
What is the stock price at year 2?
What is the stock price at year 1?
What is the stock price at year 0?
What is the dividend yield of year 1?
What is the capital gain yield of year 1?
What is the dividend yield of year 10?
What is the capital gain yield of year 10?
In: Finance