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    Finance questions

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    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.

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    Solution Summary

    The solution explains various questions in finance relating to determinant of Interest rates, Yield to Call, Realized Rate of Return, NPV, IRR, MIRR

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