Selected practice questions from Chapters 6 – 8, FIN 335, with Dr. Graham From Chapter 6 – Bonds and Bond Value 1. The stated interest payment, in dollars, made on a bond each period is called the bond's: A) Coupon. B) Face value. C) Maturity. D) Yield to maturity. E) Coupon rate. Answer: A 2. The principal amount of a bond that is repaid at the end of the loan term is called the bond's: A) Coupon. B) Face value. C) Maturity. D) Yield to maturity
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Generally speaking NPV ( Net Present Value ) and IRR ( Internal Rate of Return ) metrics help us decide whether to accept or reject investment proposals. The following figure illustrates graphically both methods in our current example. This graph is called NPV Profile which points out the curvilinear relationship between NPV for a project and the discount rate. At a discount rate of zero, the NPV is just the total cash inflows minus the total cash outflows of the project. Assuming the conventional
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CAPITAL BUDGETING (Technique) Process Capital Budgeting 1. Biaya proyek harus ditentukan. 1. Manajemen harus memperkirakan aliran kas yg diharapkan dari proyek, termasuk nilai akhir aktiva. 2. Risiko dari aliran kas proyek harus diestimasi (memakai distribusi probabilitas aliran kas). 3. Dengan mengetahui risiko dari proyek, manajemen harus menentukan biaya modal (cost of capital) yg tepat untuk mendiskon aliran kas proyek. 4. Dengan menggunakan nilai waktu
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Budgeting Model Case Paper February 24, 2014 When incorporating whether to purchase Corporation A or Corporation B, it was easy to choose Corporation B. The reason behind this decision is based on a multitude of things. The income statements are close to one another, and even though the statement is slightly greater in Corporation A than B, that is not the main reason for the decision. The income statement is very similar to a company’s cash flow. With the income statement being marginally
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i. Calculate the NPV of this investment opportunity. Should the company make the investment? NPV = PV\,inflows-PV\,outflows = 1,040,534.383-871,052.1399 = 169,482.24 Since NPV>0, the company should make the investment ii. Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. Setting the NVP=0 and using Excel, we get
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| | | | | | | | Internal Rate of Return (IRR) to Sponsors | | | | | | | | | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | | (2,300) | 0 | 0 | 0 | 0 | 5363 | IRR(median)1 | 18.5% | | | | | | | | | | | | | IRR(mean)2 | (2,300) | - | - | - | - | 5996 | | 21.1% | | | | | | | | | | | | | IRR(DTF/URI)3 | (2,300) | - | - | - | - | 4306 | | 13.4% | | | | | | | | | | | | | IRR(Cendant/URI)4 | (2,300) | - | - | - | - | 6261 |
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and initial cost, do you know how to calculate PI?) Understand the problems related to NPV, IRR, PI and Payback period. Make right decisions given NPV, IRR, PI or Payback period. Q2 You are considering a project with the following year-end aftertax cashflows: Year 1: $5000 Year 2: $3200 Year 3: $7800 If the initial investment for the project is $16000, compute the project’s IRR (internal rate of return) Q3 Given the following projects: | |Year
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ESI Analysis Report ESI Analysis Report Monster computer corporation | September 3, 2006 Monster computer corporation | September 3, 2006 pathrite systems analysis Frances Wu, Inola zeng, JIAN QIN, mOHAMODE zATMAH pathrite systems analysis Frances Wu, Inola zeng, JIAN QIN, mOHAMODE zATMAH It is recommended that EIS purchase the Pathrite System, since the expected value of the net present value of the project is positive, no matter we consider the CCA rate or not.
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2010). In this paper we were asked to utilize quantitative analysis to perform 5 year and 10 year cash flow calculations utilizing internal rate of return IRR and Net present value to strategically determine which analysis yields the best fit for the project at hand. Keywords: cost modeling, cash flows, projects, quantitative, analysis, IRR, Internal rate of return, NPV, Net Present Value Developing a baseline schedule for a project is important; in addition the aforementioned it’s also necessary
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choosing any investment project is to maximise the value of the firm, the NPV should be used to make a decision whenever the ranking conflict occurs. This is because the NPV tells us how much extra value will be created for shareholders, while the IRR does not. It is also important to note that the NPV criterion is the one most directly related to shareholder value and share prices as illustrated in Example 2–6 of the reading. However, this is a simplified example and the effect of a project
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