Yonan Corporation's stock had a required return of 11.50% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Now suppose there is a shift in investor risk aversion, and the market risk premium increases by 2%. The risk-free rate and Yonan's beta remain unchanged. What is Yonan's new required retu
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Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7400 per year for 5 years. Calculate the two projects, NPV, IRRs, MIRR and PI, assuming a cost of capital of 12%. Which project would be selected,
For IRR v. MIRR valuation methods: - Identify the issues. - Specific current and / or future applications and relevance to the workplace/ - Emphasis on application of new learning. - If possible, provide a context of a first-person experience where you saw this academic concept in operation. Do not simulate third-party sta
Planning for Growth at S&S Air After Chris completed the ratio analysis for S&S Air, Mark and Todd approached him about planning for next year's sales. The company had historically used little planning for investment needs. As a result, the company experienced some challenging times because of cash flow problems. The lack of pl
Compute the value of a share of common stock of a company whose most recent dividend was $2.50 and is expected to grow at 3 percent per year for the next 5 years, after which the dividend growth rate will increase to 6 percent per year indefinitely. Assume 10 percent required rate of return.
Project A has a WACC of 10% and the following cash flows: Project A Year Cash Flow 0 -$300 1 100 2 150 3 200 4 50 2. What is Project A's NPV? a. $ 21.32 b. $ 66.26 c. $ 83.00 d. $ 99.29 e. $112.31 3. What is Project A's IRR? a. 13.44% b
RETURNS State of Economy Probability of State Stock A Stock B Stock C Boom .10 22% 18% 5% Normal .85 14% 13% 11% Recession .05 -28% 4% 17% 4. You have a portfolio that is equally weighted among stocks A, B, a
Mane Event is considering opening a new hair salon in Pompador, California. The cost of bulding a new salon is $300,000. A new salon will normally generate annual revenues of $70,000, with annual expenses (including depreciations) of $40,000. At the end of 15 years the salon will have a salvage value of $75,000. Instructions
Los Angeles Lumber Company (LALC) is considering a project with a cost of $1,000 at time = 0 and inflows of $300 at the end of Years 1 - 5. LALC's cost of capital is 10 percent. What is the project's modified IRR (MIRR)? a. 10.0% b. 12.9% c. 15.2% d. 18.3% e. 20.7%
Please see the attached file. Problem 11-11. MIRR and NPV Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Year X Y 0 -$1,000 -$1,000 1 100 1,000 2 300 100 3 400 50 4 700 50 The projects are equally risky, and their cost of capital is 15 percent. You mus
If investors require a 8% return, what rate of growth must be expected for Spencer? If Spencer reinvests earnings in projects with average returns equal to the stock's expected rate of return, what will be next year's EPS?
Problem 10-12. Calculation of g and EPS Spencer Supplies' common stock is currently selling for $61 a share. The firm is expected to earn $5.70 per share this year and to pay a year-end dividend of $2.10. a. If investors require a 8% return, what rate of growth must be expected for Spencer? Round the answer to the nearest hun
Curtis Construction is considering a new manufacturing tool that will cost $2,000,000. The manufacturing tool is in the Modified Accelerated Cost Recovery System 3-year class and will be sold after 3 years for $200,000. Use of the tool will increase net working capital by 200,000. The tool will save $550,000 each year in op
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 z
Your company is considering two mutually exclusive projects,X and Y, whose costs and cash flows are shown below: Year X Y 0 (1,0000) (1,000) 1 100 1,000 2 300 100 3 400
Project S has a cost of $10,000 and is expected to produce benefits (cash flow) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects' NPVs, IRRs, MIRRs, and PIs assuming a cost of capital of 12%. Which project would be select
Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions cho
Create an Excel spreadsheet for a production plant that the company will lease for 5 years at US$1,500,000 per year; it will cost the firm US$4,000,000 in capital (straight-line depreciation, 5 year life) in year 0; it will cost the firm an additional US$150,000 per year after the new production plant is brought online for other
Rishi Singh has $1,500 to invest. His investment counselor suggests an investment that pays no stated interest but will return $2,000 at the end of 3 years. a) What annual rate of return will Rishi earn with this investment?
Problem: Starting at age 25, a person invests $6,000 at the end of every year for 35 years. If the person wants one million dollars at age 65, what interest rate must the investment earn? Notes: Person only deposits money for annually for 35 years. n=35 Last 5 years no deposits are made. n=5 Should this be solved to PW fi
Please help with the following problem. You are considering investing in a portfolio of the common stocks of four publicly-traded companies with betas as follows: ABC - 0.7 DEF - 0.9 GHI - 1.3 JKL - 1.9 If the risk-free rate is 4.5% and the market rate is 8.5%, what is your expected rate of return of following stock
I am considering the following project. The project has an up-front cost and will also generate the following subsequent cash flows: t=1 $400, t=2 $500, t=3 $200 The project's payback is 1.5 years, and it has a cost of capital of 10 percent. What is the project's modified internal rate of return (MIRR)?
Pappas Products is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates the MIRR. If the decision is made by choosing the project with the higher IRR rather than t
The President of EEC recently called a meeting to announce that one of the firm's largest suppliers of component parts has approached EEC about a possible purchase of the supplier.
The President of EEC recently called a meeting to announce that one of the firm's largest suppliers of component parts has approached EEC about a possible purchase of the supplier. The President has requested that you and your staff analyze the feasibility of acquiring this supplier. What information will you and your staff need
Timothy Company has invested $2,000,000 in a plant to make vending machines. The target operating income desired from the plant is $300,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $2,000 each. 1. What is the target rate of return on investment for Timothy Company? 2. What is t
Suppose a company is considering a project that has the following cash flow and WACC data. What is the project's MIRR? WACC = 10% Year 0 = -$900 Year 1 = $300 Year 2 = $320 Year 3 = $340 Year 4 = $360
Company stock sells for 200 pesos per share and next year's dividend is 8.5 pesos. Security analysts are forecasting earnings growth of 7.5% per year for the next 5 years. a. Assume that earnings and dividends are expected to grow at 7.5% in perpetuity. What rate of return are investors expecting? b. The company has genera
A Co. has two investments opportunities. Both investments cost $5,000 and will provide the following net cash flows. Year Investment A Investment B 1 $3,000 $3,000 2 3,000 4,000 3 3,000 2,000 4 3,000 1,000 The total present value in investment A's cash inflow'
What are the MIRR's advantages and disadvantages vis-a-vis the regular IRR? What are the MIRR's advantages and disadvantages vis-a-vis the NPV? What is the "reinvestment rate assumption", and how does it affect the NPV versus IRR conflict?
Miranda Corp. is expected to pay a dividend of $2.00 at the end of the year. The growth rate is 6%. Currently the stock is trading in the secondary market at $40 per share. What rate of return is the market requiring of the stock this year, based on the dividend discount model? Assume the growth factor is constant and tha
Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Year...........X............Y 0.............(1,000)......(1,000) 1................100........1,000 2................300..........100 3................400...........50 4................700...........50 The