If asset A is a 10-year Treasury bond which has no default risk and is yielding 4% while asset B is a 15-year Treasury bond with no default risk also yielding 4%, investors would
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prefer asset A. |
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prefer asset B. |
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be indifferent between the two assets. |
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require more information before choosing asset A or asset B. |
In: Economics
Assume that Stan takes a student loan of $5,000 at the beginning of his first year at Miskatonic University and graduates at the end of year 5. After graduation, a 7% interest rate on the debt is applied. If Stan makes four equal annual payments to re-pay the debt in four years after graduation, what is the IRR on his loan?
In: Economics
The present value for a $4,200 investment at 1.10% interest rate is $4,210 in 1 year true or false
In: Finance
If you hear that unemployment increased in the last year by 3.5 percentage points to 8 %it means: Multiple Choice 80 out of every 100 people who want a job can't find one. 35 out of every 100 people lost their job in the last year. 35 out of every 1,000 people lost their job in the last year. 8 out of every 1,000 people who want a job can't find one.
In: Economics
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for MACRS. The project has a three-year life. At the end of the project, the equipment will be worth about 20 percent of what we paid for it. We will have to invest $47,000 in net working capital at the start. After that, net working capital requirements will be 10 percent of sales. All additional investments in net working capital will be recovered at the end of the project. The project is expected to generate annual sales of $965,000 and costs of $508,000. The tax rate is 21 percent and the required rate of return is 14.7 percent. What is the project's IRR?
38.74%
28.36%
45.61%
51.92%
22.69%
Should this project be accepted?
In: Finance
A project will require $511,800 for manufacturing equipment. The equipment is classified as five-year property for MACRS. The project has a three-year life. At the end of the project, the equipment will be worth about 20 percent of what we paid for it. We will have to invest $47,000 in net working capital at the start. After that, net working capital requirements will be 10 percent of sales. All additional investments in net working capital will be recovered at the end of the project. The project is expected to generate annual sales of $965,000 and costs of $508,000. The tax rate is 21 percent and the required rate of return is 14.7 percent. What is the change in net working capital in Year 1?
$54,200
$47,000
$78,300
$96,500
$49,500
In: Finance
Say you own an asset that had a total return last year of 18.5 percent. If the inflation rate last year was 3 percent, what was your real return?
In: Finance
The real risk-free rate is 2.75%. Inflation is expected to be 2.50% this year and 5.00% during the next 2 years. Assume that the maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.
What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.
In: Finance
Herman Co. is considering a four-year project that will require an initial investment of $15,000. The base-case cash flows for this project are projected to be $12,000 per year. The best-case cash flows are projected to be $20,000 per year, and the worst-case cash flows are projected to be –$1,000 per year. The company’s analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows.
1. What would be the expected net present value (NPV) of this project if the project’s cost of capital is 14%?
$16,323
$19,588
$18,771
$17,955
Herman now wants to take into account its ability to
abandon the project at the end of year 2 if the project ends up
generating the worst-case scenario cash flows. If it decides to
abandon the project at the end of year 2, the company will receive
a one-time net cash inflow of $3,000 (at the end of year 2). The
$3,000 the company receives at the end of year 2 is the difference
between the cash the company receives from selling off the
project’s assets and the company’s –$1,000 cash outflow from
operations. Additionally, if it abandons the project, the company
will have no cash flows in years 3 and 4 of the
project.
2. Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account.
$17,409
$22,632
$21,761
$20,891
3. What is the value of the option to abandon the project?
$1,086
$923
$977
$760
$1,140
In: Finance
You are trying to value the stock of XYZ Corp. Total earnings for year 1 are forecasted to be $115 million. You know that the company plans on paying out 33% of its earnings in the form of dividends and 23% in the form of share repurchases each year, and that all of the growth in future earnings will be through retained earnings. The company's return on new investment is 15%, its cost of equity is 12% and it has 136 million shares outstanding. Given this information, estimate the current share price for XYZ Corp. Round your answer to two decimals (do not include the $-symbol in your answer).
In: Finance