See the attached file.
The textbook is called Financial Management Theory and Practice, 12th edition by Brigham and Ehrhardt.
Problem 5 - 4. Determinant of interest Rates. The real risk free rate is 2 %. Inflation is expected to be 3 % this year and 4% during the next 2 years. Assume that the maturity risk premium is zero.
a. What is the yield on 2 year Treasury securities? Round the answer to the nearest hundredth. ______%.
b. What is the yield on 3 year Treasury securities? Round the answer to the nearest hundredth.
Problem 5 - 11. Yield to Call and Realized Rates of Return. Nine years ago, Goodwyn and Wolf incorporated sold a 16 year bond with a 11% annual coupon rate and a 10% call premium. Today, G& W called the bonds. The bonds originally were sold at their face value of $1000. Compute the realize rate of return for investors who purchased the bonds when they were issued and who surrender them today in exchange for the call price. __%.
Problem 11-7 NPV Your division is considering two investment projects, each of which requires an up front expenditure of $23 million. You estimate that the investments will produce the following net cash flows:
Year Project A Project B
1 45000000 $20000000
2 10000000 10000000
3 20000000 6000000
What are the two projects net present value assuming the cost of capital is 10%.
a. Project A $____________ b. Project B $ ___________
What are the two projects net present values assuming the cost of capital is 5%.
c. Project A $ _____________________ d. Project B $ _______________
What are the two projects net present values, assuming the cost of capital is 15%
e Project A $ ________ f. Project B $ __________________________--
Problem 11 8 NPVs, IRRs and MIRRs for independent Projects Wdelman Engineering is considering including two pieces of equipment a truck and an overhead pulley system in this year's capital budget. The projects are independent. The cash outlay for the truck is $17100 and that for the pulley system is $22430. Project A is the truck and Project B is the pulley. The firms cost of capital is 14%. After tax cash flows including depreciation are as follows:
Year Truck Pulley
1 $5100 $7500
2 5100 7500
3 5100 7500
4 5100 7500
5 5100 7500
Calculate IRR for each project.
a. Project A _____%
b. Project B___%
Calculate NPV for each project.
c. Project A ____%
d. Project B _____%
Calculate MRR for each project
e. Project A ____%
f. Project B ___%
Problem 11-2 NPV and IRR Analysis. After discovering a new gold vein in the Colorado Mountains, CTC Mining Corporation must decide whether to mine the deposit. The most cost effective method o mining gold is sulfuric acid extraction a process that results in environmental damage. To go ahead with the extraction CTC must spend $9000 for new mining equipment and pay $165000 for its installation. The gold mined will net the firm an estimated $350000 each year over the 5 year life of the vein. CTC's cost of capital is 17%. For the purposes of this problem assume that the cash inflows occur at the end of the year.
The solution explains various questions in finance relating to determinant of Interest rates, Yield to Call, Realized Rate of Return, NPV, IRR, MIRR