QUESTION Using the NPV Rule Suppose we are asked to decide whether or not a new consumer product should be launched. Based on projected sales and costs, we expect that the cash flows over the five-year life of the project will be $2,000 in the first two years, $4,000 in the next two, and $5,000 […]
Date: September 2nd, 2020
QUESTION The primary financial objective of corporate finance is usually taken to be the maximization of shareholder wealth. Discuss what other objectives may be important to a public limited company and whether such objectives are consistent with the primary objective of shareholder wealth maximisation. The object of the Corporate Finance is the acquisition and allocation […]
Date: September 2nd, 2020
QUESTION Mr. Smith is presently concerned with investment of $ 1 million in either Microsoft or Apple. The two securities are called MSFT and AAPL and the relevant information for the securities are listed below MSFT AAPL Expected Return 12% 20% Standard Deviation 10% 18% The coefficient of correlation is 0.15. He has decided to […]
Date: September 2nd, 2020
QUESTION Present and future values for different interest rates Find the following values. Compounding/discounting occurs annually. Round your answers to the nearest cent. An initial $500 compounded for 10 years at 7%. $ An initial $500 compounded for 10 years at 14%. $ The present value of $500 due in 10 year at a discount […]
Date: September 2nd, 2020
QUESTION An investor buys a stock for $36. At the same time a six-month put option to sell the stock for $35 is selling for $2. a) What is the profit or loss from purchasing the stock if the price of the stock is $30, $35, or $40? b) If the investor also purchases the […]
Date: September 2nd, 2020
QUESTION Consider the following year-end prices of a hypothetical market index:YearPrice200410020051102006104.52007106.592008106.592009110.852010108.63(a) Compute the expected (annual) return of the market index as the arithmetic average of the annual returns of the market index.Assume that the risk-free rate equals 0.75% and use the above market index as the Market Portfolio.(b) Assuming that the CAPM holds, what is […]
Date: September 2nd, 2020
QUESTION Define each of the following terms IN YOUR OWN WORDS: a. Agent; principal; agency relationship b. Agency cost c. Basic types of agency conflicts d. Managerial entrenchment; nonpecuniary benefits e. Greenmail; poison pills; restricted voting rights f. Stock option; ESOP a) Agent; principal; agency relationship When any person or an entity acts on behalf […]
Date: September 2nd, 2020
QUESTION A lottery sells 1 million tickets.One of those tickets wins the grand prize of $1 million, 100 tickets win 1st place prizes of $10,000, and 10,000 tickets win prizes of $1.(a) What is the expected value of winnings from a single lottery ticket?(b) What is the variance of the winnings from a single lottery […]
Date: September 2nd, 2020
QUESTION It is a common saying that the only thing certain about a forecast is that it will be wrong. What is meant by this Forecasting is required in mostly all domains or units of a business. Since forecasting is based on assumptions about the market. It might get right if assumptions are good enough […]
Date: September 2nd, 2020
QUESTION Using ROI, RI, and EVA to evaluate investment centers San Diego Paints is a national paint manufacturer and retailer. The company is segmented into five divisions: Paint stores (branded retail locations), Consumer (paint sold through stores like Sears and Lowes), Automotive (sales to auto manufacturers), International, and Administration. The following is selected divisional information […]
Date: September 2nd, 2020
