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- A firm is considering purchasing equipment to manufacture a new product. The equipment will cost $3M, and expected net cash inflowsare $0.35M indefinitely. If market demand for theproduct is low, then over the next five years thefirm will have the option of discarding the equipment on a secondary market for $2.2M. Assume thatMARR = 12%, s = 50%, and r = 6%. What isthe value of this investment opportunity for the firm?Jacob manages a cloth manufacturing firm. He is deciding whether or not to invest In new machinery, The machinery costs $45,000 today and is expected to Increase cash lows in the first year by $25,000 and in the second year by $30,000. The firm's accrued fixed costs are $2800. If the interest rate (cost of capital) is 15% then whal is the net present value of the investment? 26.09 O 1840.09 2826.09 -576.56bond valuation An investor has two nonds in her portfolio, bond C and bond Z. each bond maturres in 4 years has a face value of 1000, and has a yield to maturity of 9.6% bond C pays a 10% annual coupon, while bond Z is a zeo coupon bond . b- assuming that the yield to maturity of each bond remains at9.6% over the next 4 years, calculate the price of the bonds at each of the following years to maturity year 4,3,2,1,0 b- plot the time path of price for each bond
- 2. You purchase special equipment that reduces defects by $10,000 per year on an item. This item is sold on contract for the next five years. After the contract expires, the special equipment will save approximately $2,000 per year for five years. You assume that the machine has no market value at the end of ten years. How much can you afford to pay for this equipment now if you require a 20% annual return on your investment?2. A capital investment can be purchased for an immediate outlay of S100,000. The investment is expected to produce annual cash flows of s10.000 for the next 20 years beginning on the date of the cash outlay. How much wealth is created or destroyed by this investment at a required return of 10%?Carnes Cosmetics Co.'s stock price is $60, and it recently paid a $1.25 dividend. This dividend is expected to grow by 27% for the next 3 years, then grow forever at a constant rate, g; and rs = 14%. At what constant rate is the stock expected to grow after Year 3? Do not round intermediate calculations. Round your answer to two decimal places.
- Which of the following will give the correct net annual premium for a $10,000, 10-year deferred, 20-year term insurance policy, issued to (45), if the premium is payable only during the deferral period? OA 10,000 10l 4'as.20 / das 20 B. 10,000 10l 4'as 20 / das 10 OC. 10,000 10l 4'ss.20 / ä4s:10 D. 10,000 A'as20/ äas:10The demand D (in billions of £) for a bond with coupon rate 5% and face value FV = 1000, andtwo years to maturity as a function of its price P is D = 4000 − 2P. The supply in (billions of£) as a function of the price of the bond is S = 2P + 400. b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantitydemanded/supplied at this interest rate? What happens to the demand/supply of the bond asthe interest rate increases? Explain why. c) What is the equilibrium interest rate? d) Suppose that the bond trades at premium. Is there excess demand or supply? Explain.e) There is a business cycle expansion, so both supply and demand shifts. After the shift, thenew demand curve is given by: D = 4000 + X − 2P, whereas the new supply curve is S =2P + 200. For which values of X will the interest increase/decrease? Which values of X arein line with empirical data?The demand D (in billions of £) for a bond with coupon rate 5% and face value FV = 1000, andtwo years to maturity as a function of its price P is D = 4000 − 2P. The supply in (billions of£) as a function of the price of the bond is S = 2P + 400. b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantitydemanded/supplied at this interest rate? What happens to the demand/supply of the bond asthe interest rate increases? Explain why. c) What is the equilibrium interest rate?
- The current price of a stock is $64.45. If dividends are expected to be $0.80 per share for the next five years, and the required return is 8%, then what should the price of the stock be in 5 years when you plan to sell it? The price 5 years from now will be $____4. Looking forward - Future value Compounding Interest You know that paying yourself by depositing money in a savings account is a prudent start to your retirement plan. You determined that, based on your other obligations, you can save 7,375.00 per year via an annual, single year-end deposit. You are 40 years old now, so your money will grow for the next 25 years until you turn 65. You will open a savings account at the US Bank branch near your home. Its savings accounts are paying 6% interest. The following table shows the future value factors for various periods and interest rates: Future Value of an Annuity Factor 3% 6% 8% 9% 10% 5% 12.578 10.950 11.460 13.180 14.487 15.190 15.937 13.412 14.190 15.917 16.870 18.977 20.140 21.384 17.293 18.600 21.578 23.270 27.152 29.360 31.772 24.297 26.870 33.066 36.780 45.762 51.160 57.274 32.030 36.460 47.726 54.860 73.105 84.700 98.346 40.567 47.570 66.438 79.060 113.282 136.300 164.491 49.994 60.460 90.318 111.430 172.314 215.700 271.018…6. You are given an annuity payable continuously at the rate of • $1000 per year while both (40) and (50) are alive • $600 per year while one of (40) and (50) is alive and the other is dead The present value of this annuity is $9400. A second annuity payable continuously at the rate of $1200 per ycar while either of them is alive has present value $13200. What is the present value of an annuity payable continuously at the rate of $1000 per year while one of (40) and (50) is alive and the other is dead?