Two bonds of equal risk are for sale on the secondary bond market. The two bonds have the same face value, and both mature in 10 years. Bond A pays $10 per year and bond B pay $15 per year. Which bond will sell for a higher price?
a. Bond A.
b. Bond B.
c. They will sell for the same price.
d. The relative prices will depend on the expected interest rate over the next 10 years.

A $130,000 investment in new equipment this year will increase your firm's profits by $50,000 in each of the next 3 years. What is the net present value of this investment if your firm's opportunity cost of capital is 10 percent?
a. - $5,657
b. $ 5,657
c. $ 124,343
d. $ 128,850

The interest rate R in an NPV calculation should always
a. be the return that the firm could earn on a similar investment.
b. always be riskless interest rate (e.g., U.S. Treasury bills).
c. always be rate on corporate bonds.
d. always be rate of return available in the stock market.
e. always be interest rate at which the firm has to borrow.

Of all the below endeavors of Happy Home Insurance Company of California, which involves the most nondiversifiable risks?
a. Fire insurance b. Home burglary insurance
c. Earthquake insurance d. Personal accident insurance
e. Home office insurance

Two bonds of equal risk are for sale on the secondary bond market. The two bonds have the same face value, and both mature in 10 years. Bond A pays $10 per year and bond B pay $15 per year. Which bond will sell for a higher ...

Solution Summary

Response discusses the net present value of this investment.

Assume the required rate of return increases to 20%. The netpresentvalue of the investment would
a. increase
b. decrease
c. stay the same
d. become negative
e. both "b" and "d", above.

A company is considering an investment in a machine that costs $54,000 and would result in cash savings of $15,000 per year for 5 years. The company's cost of capital is 10%. Compute the NetPresentValue.

What is the NetPresentValue (NPV) of an investment project with an initial cost of $6 million and positive cash flows of $1.6 million at the end of the year 1, $2.4 million at the end of year 2, and $2.8 million at the end of year 3. Use 10% as the discount rate.

If you have 4 projects with the following investment and NetPresentValue in what order should you pick the projects.
Project 1: Investment of $160,000 and NetPresentValue of $30,000
Project 2: Investment of $120,000 and NetPresentValue of $15,000
Project 3: Investment of $110,000 and NetPresentValue of $25,000
P

6. The following data pertain to an investment that is being considered by the management of Sublex Company:
Discount rate 10%
Life of the project 5 years
Cost of the investment $56,865
Annual cost savings 15,000
Estimated salvage value 3,000
What is the netpresentvalue of the proposed investment? Should the project

Financial decision that you have made. Could you have used NPV to make this decision? Would you have made the same decision if you had used NPV analysis?

Project A: presentvalue (PV) of cash inflows is $55,000 and the PV of the cash outflows is $50,000. Project B: PV of cash inflows is $24,000 and the PV outflows is $20,000. All of the following are true except ______.
the netpresentvalue of Project A is $5,000, the netpresentvalue of Project B is $4,000, the profita

Consider a project with the following expected cash flows:
Year Cash flow
0 - $400,000
1 $100,000
2 $120,000
3 $850,000
If the discount rate is 0%, what is the project's netpresentvalue?
If the discount

I have two questions
Problem 1
You have an opportunity to invest in a business venture. It requires a $250,000 investment on January 1st. You will receive $70,000 in After-Tax Cash Flows per year on December 31st for 3 years.
At the end of 3 years, the project will be terminated, and all assets liquidated.
The net te

Linda Johnson is a freshmen at State University. She is considering starting a business in her dorm room that would sell computer supplies such as diskettes and ink cartridges to her fellow students. Gina estimates the business would generate $1,500 in net cash flow each of the next four years. To start the business she would ne