9) A project costs $3000 immediately. The project yields nominalreturns of $100 in year 1, $200 in year 2, $300 in year 3, $400 inyear 4, and $500 in year 5. In addition, the project will havecapital worth $2500 (in nominal $) left over in year 5. The realdiscount rate is 7% and the expected inflation rate is 3%. What isthe NPV of this project? 10)You have $2000 to invest, and arechoosing between two projects, both of which cost $2000 up frontand will yield six years of returns. The returns for the firstinvestment will be paid in nominal $, starting at $400 a year fromnow and increasing at 8% annually. The returns for the second willbe paid in real $, starting at $500 and increasing at 2% annually.If your real hurdle rate is 4.5% and the expected inflation rate is3.1%, which of these investments should you choose (if any)?
9) A project costs $3000 immediately. The project yields nominalreturns of $100 in year 1, $200 in year 2, $300 in year 3, $400 inyear 4, and $500 in year 5. In addition, the project will havecapital worth $2500 (in nominal $) left over in year 5. The realdiscount rate is 7% and the expected inflation rate is 3%. What isthe NPV of this project? 10)You have $2000 to invest, and arechoosing between two projects, both of which cost $2000 up frontand will yield six years of returns. The returns for the firstinvestment will be paid in nominal $, starting at $400 a year fromnow and increasing at 8% annually. The returns for the second willbe paid in real $, starting at $500 and increasing at 2% annually.If your real hurdle rate is 4.5% and the expected inflation rate is3.1%, which of these investments should you choose (if any)?
Related questions
1. Suppose you sell a fixed asset for $77,000 when it's bookvalue is $84,000. If your company's marginal tax rate is 33%, whatwill be the effect on cash flows of this sale (i.e., what will bethe after-tax cash flow of this sale)?
$79,310
$84,000
$51,590
$7,000
2.
Portfolio Weights If you own 705 shares of AirLine Inc at $42.7, 320 shares of BuyRite at $55.95, and 420 sharesof Motor City at $10.0, what are the portfolio weights of eachstock?
Air Line = .3333, BuyRite = .3333, MotorCity = .3333
Air Line = .4879, BuyRite = .2215, MotorCity = .2907
Air Line = .7050, BuyRite = .3200, MotorCity = .4200
Air Line = .5768, BuyRite = .3431, MotorCity = .0801
3.
Selling Stock with a Limit Order You would liketo sell 400 shares of Pfizer, Inc.(PFE). The current bid and askquotes are $27.30 and $27.33, respectively. You place a limitsell-order at $27.32. If the trade executes, how much money do youreceive from the buyer?
$10,920
$21,852
$10,932
$10,928
4.
Expected Return Circuit City Stores (CC)recently paid a $.26 dividend. The dividend is expected to grow ata 24.00 percent rate. At the current stock price of $8.96, what isthe return shareholders are expecting?
27.60%
2.90%
24.00%
24.03%
5.
Portfolio Beta You own $22,500 of City Steelstock that has a beta of 3.33. You also own $39,000 of Rent-N-Co(beta = 1.78) and $20,800 of Lincoln Corporation (beta = -.82).What is the beta of your portfolio?
4.86
1.55
4.29
1.00
6.
Portfolio Return At the beginning of the month,you owned $10,100 of Company G, $10,200 of Company S, and $15,400of Company N. The monthly returns for Company G, Company S, andCompany N were 9.4 percent, -1.27 percent, and 9.3 percent. What isyour portfolio return? (Round intermediate calculations to 2decimal places.)
17.45%
6.66%
5.82%
6.26%
7.
Suppose your firm is considering investing in a project with thecash flows shown below, that the required rate of return onprojects of this risk class is 10 percent, and that the maximumallowable payback and discounted payback statistic for the projectare 2 and 3 years, respectively.
| Time | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| CashFlow | -1,070 | 100 | 500 | 700 | 700 | 300 | 700 |
Use the discounted payback decision rule to evaluate this project;should it be accepted or rejected?
3.08 years, reject
2.83 years, accept
2.92 years, accept
3.09 years, reject
8.
Portfolio Weights If you own 330 shares of AirLine Inc at $19.65, 260 shares of BuyRite at $10.6, and 440 sharesof Motor City at $46.65, what are the portfolio weights of eachstock?
Air Line = .2178, BuyRite = .0926, MotorCity = .6896
Air Line = .3333, BuyRite = .3333, MotorCity = .3333
Air Line = .3300, BuyRite = .2600, MotorCity = .4400
Air Line = .3204, BuyRite = .2524, MotorCity = .4272
9.
Suppose your firm is considering investing in a project with thecash flows shown below, that the required rate of return onprojects of this risk class is 12 percent, and that the maximumallowable payback and discounted payback statistic for the projectare 2 and 3 years, respectively.
| Time | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| CashFlow | -1,150 | 30 | 570 | 770 | 770 | 370 | 770 |
Use the NPV decision rule to evaluate this project; should it beaccepted or rejected?
$2,118.66, accept
$864.87, accept
$-495.13, reject
$968.66, accept
10.
JackITs has 5.6 million shares of common stock outstanding, 1.6million shares of preferred stock outstanding, and 26.00 thousandbonds. If the common shares are selling for $28.60 per share, thepreferred share are selling for $14.10 per share, and the bonds areselling for 97.94 percent of par, what would be the weight used forequity in the computation of JackIT's WACC?
77.50%
33.33%
76.93%
66.67%
