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# Investments

### Nob-Orrow Inc. is considering an investment in a project that is similar in risk to its existing projects.

Question 20 &&& Nob-Orrow Inc. is considering an investment in a project that is similar in risk to its existing projects. The firm makes no use of debt and is entirely financed by common stock with a beta of 1.4. The expected return on the market portfolio is 10 percent and the risk-free rate is 4 percent. The required r

### What is Meant by Investment in Human Capital?

What is meant by investment in human capital? Use this concept to explain (a) wage differentials, and (b) the long-run rise of real wage rates in the United States.

### Present Value of the Cash Inflows

A project which requires an initial investment of \$25,000, has the following for annual cash inflows: Year Cash Inflow 1 \$5,000 2 8,000 3 12,000 4 8,000 If the cost of capital is 12%, the present value of the cash inflows is \$25,282, and the project can be accepted.

### basic investment

Martha Reed has been depositing \$1,500 in her savings account every December since 1998. Her account earns 6 percent compounded annually. How much will she have in December of 2007? (Assume that a deposit is made in 2007. Make sure to count the years carefully.)

### Economics: Payback and Net Present Value

Please help with the given economics problem: X-treme vitamin company is considering two investments, both of whch cost \$ 10,0000. The cash flows re as follows. Which of the two project shouldb chosen based on the payback method? Which of the two prjectsshould be chose baded on teh net presnt vue method? Should afirm norm

### Return on investment

Suppose you have invested only in two stocks, A and B. The returns on the two stocks depend on the following three states of the economy, which are equally likely to happen: State of Economy Return on Stock A (%) Return on Stock B (%) Bear 6.30 -3.70 Normal 10.50 6.40 Bull 15.60 25.30 1. Calculate the expected return on

### Investment payoff for football stadium

Your college is considering investing \$6 million to add 10,000 seats to its football stadium. The athletic department forecasts it can sell all these extra seats each game for a ticket price of \$20 per seat, and the team plays six home games per year. If the school can borrow at an interest rate of 14 percent, should the school

### Nation's GDP Produced

An economy produces final goods and services with a market value of \$5,000 billion in a given year, but only \$4,500 billion worth of goods and services is sold to domestic or foreign buyers. Is this nation's GDP \$5,000 billion or \$4,500 billion? Explain your answer.

### Investment Demand

What's wrong with the following statement? If the investment demand for loanable funds rises, then the supply of loanable funds will rise, so the equilibrium market interest may rise or fall.

### Net exports, the government budget, saving and investment

Suppose U.S. net exports are -\$400 billion and the U.S. government sector surplus is \$200 billion. Then in the private sector, saving minus investment equals?

### Calculate Ratios

Show the calculation for the return on investment ratios and the return on equity ratios for both kraft foods and general mills for the 2005 and 2006 years. Compare the results. I have attached a grid however I am having a problem extracting the figures for the companies.

### Common Stock Value; Net Present Value Profile

25. Maxwell Communications paid a dividend of \$3 last year. Over the next 12 months, the dividend is expected to grow at 8 percent, which is the constant growth rate for the firm (g). The new dividend after 12 months will represent D1. The required rate of return (Ke) is 14 percent. Compute the price of the stock (P0). 21.

### Net Present Value Method Problem

11 Aerospace Dynamics will invest \$110,000 in a project that will produce the following cash flows. The cost of capital is 11 percent. Should the project be undertaken? (Note that the fourth year's cash flow is negative.) Year Cash Flow 1. . . . . . . . . \$36,000 2. . . . . . . . . 44,000

### capital recovery annuity

You need \$28, 974 at the end of 10 years, and your only investment outlet is an 8 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. a. What single payment could be made at the beginning of the first year to achie

### Investment Propositions - Bonds/Risk-Standard Deviation

7. A one-year zero coupon bond has a yield to maturity of 4 percent and a two year zero-coupon bond has a yield to maturity of 5 percent. A 6 percent coupon bond with annual payments, par value of \$1,000 and two-year maturity should trade at what price in the absence of arbitrage opportunities? 8. Suppose that you have \$1 mil

### What is the NPV of a project that is expected to pay \$10,000 a year for 7 years if the initial investment is \$40,000 and the required return is 15%?

What is the NPV of a project that is expected to pay \$10,000 a year for 7 years if the initial investment is \$40,000 and the required return is 15%?

### Finance: IRR vs. NPV

Please see the attachment on a problem comparing the internal rate of return (IRR) to the net present value method (NPV).

### Unifying Concepts: Net Present Value and Internal Rate of Return Methods

Unifying Concepts: Net Present Value and Internal Rate of Return Methods Julie Kowalis, an investment analyst, wants to know if her investments during the past four years have earned at least a 12% return. Four years ago, she had the following investments: a. She purchased a small building for \$50,000 and rented space in i

### Stocks X & Y

You are considering investing in two stocks with the unimaginative names stock X and stock Y. You believe that there are only three scenarios possible for the future and they can be labeled "bear market," "normal market," and "bull market." The table below shows the returns for the two stocks for these three scenarios and also

### Future Value and Present Value Calcuation

1) Your aunt offers you a choice of \$20,000 in 50 years or \$45 today. If money is discounted at 13 percent, which should you chose? 2) If you invest \$12,000 today, how much will you have a. in 6 years at 7% b. in 15 years at 12% c. in 25 years at 10% d. in 25 years at 10 percent compounded semian

### Finance Question

You are given the following information: ? Baseline (last year) sales: \$10 million ? Sales growth rate years 1-10: 25% ? Sales growth rate after year 10: 5% ? Profit margin years 1-10: 20% ? Profit margin after year 10: 10% ? Fixed capital investment rate: 10% ? Working capital investment rate: 7% ? Cash tax rat

### Areas of Finance

Describe the money market and capital markets, investments, and financial management. Why is it important for people in finance to know about all of these areas, even if they work in only one area?

### The term

Carefully explain the difference between the term "investment" as used by economists and the way it is used in everyday life. Use this to explain the major components of investment in the GDP accounts and why they are classified in this way. If a firm buys a ream of paper for a copier, which will be used within a year, how does

### Pros and cons of real estate investment.

Could there be different "buyer's markets" based on the type of buyer one is? For example, a cash buyer is really only concerned about value from price, while a financed buyer is concerned about price and interest rates. Or can these be lumped together rather safely? I've always wanted to get into real estate but we would be

### Investment's worth if it is compounded quarterly

\$100 earns 4% compounded quarterly - what is this worth in 5 years?

### Stock Split or Stock Repurchase Plan

Name a firm that has gone through a "stock split" or a "stock repurchase plan" and briefly state why you think the firm executed the stock split.

### Equilibrium Level of GDP

1. Find the equilibrium level of GDP demanded in an economy in which investment is \$250, net exports are zero, government purchases and taxes are both \$400, and the consumption function is as follows: C = 250 +.5 DI 2. Now referring to the problem above, Add the following aggregate supply and demand schedules. Price level

### Investment Yield

Suppose it is now Jan. 1, 2007, and you just sold an investment that you own for \$12,500. You purchased the investment 4 years ago for \$10,500. During the time you held the investment, it paid income equal to \$1,000 each year. What is the 4-year holding period yield that you earned on your investment? Please show how you a

### Internationalizing debt

What is "internationalizing" the debt and how is it relevant to today's economy? How does internationalizing the debt reduce crowding out? What are the costs of internationalizing the debt?

### Which nation is likely to receive the most benefit from this increase in investment?

Consider two nations, one a developing nation and the other a developed nation. The population size of each nation is the same. Suppose that each naton experienced an equally large increase in investment. Which nation is likely to receive the most benefit from this increase in investment? Explain your answer.