21 Earning after taxes + depreciation Pay Back Period 0 0 0 0 0 0 0 0 0 Pay Back Period divided by Net Operating Cash Flows Discounted Operating Cash flows Decision Criteria: Pay Back Period Discounted Pay Back Period Net Present Value Internal Rate of Return Profitability Index 0 0 >8 Years >8 Years 0 0 #DIV/0! Years Years $0.00 = Reject Err:523 Err:523 #DIV/0! #DIV/0! 0 0 #DIV/0! 0 0 #DIV/0! 0 0 #DIV/0! 0 0 #DIV/0! 0 0
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years only. The appropriate cost of capital is 12% with all equity financing. The borrowing rate is 8% and Raj Corporation will borrow $300000 for the project. The debt must be repaid in two equal instalments. Assume that debt tax-shields have a net value of $0.30 per dollar of interest paid. Calculate the project’s APV. 3. The following table shows the price of a sample of US treasury strips in March 2009. Each strips make a single payment of $1000 at maturity. Maturity | Price (%) | March
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Market Risk Premium = 7.2% …Given, Case Material 3. Risk-free Rate = 5.0% …Given, Case Material 4. Using CAPM, Discount Rate = 5.0% + 1.50X7.2% = 15.8% Appropriate Discount Rate = Cost of Capital = 15.8% Question 2] Value the project using the Adjusted Present Value (APV) approach, assuming the firm raises $750,000 of debt to fund the project and keeps the level of debt constant in perpetuity. Detailed calculations for project’s NPV using APV approach and assuming $750K of debt in perpetuity
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years (b) How many years would it take for $10,000 to grow into $1 million dollars in real terms? FV = PV (1+r)t 1,000,000 = 10,000 (1+0,07)t t ln (1+0,07) = ln (100) t= ln100ln(1+0,07)=68,06 years Problem 2. (a) Using the present value formula, explain why stocks are considered a good hedge against inflation. In the long run, common stocks should prove a good hedge against inflation. Ideally, expenses, income and corporate earnings should behave at least as good as inflation and
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invest on the stock of Nike, Inc. Your expected return is 12% for one year. The current share price is $42. Your benefit of the investment to purchase one share will be $5.04. If the company pay the dividend of $2.04 per share annually, the share value should increase to $45 in the next year to secure your benefit ($5.04). Therefore, the cost of equity is to cope with the risk of share price’s changes and the dividends paid by the company. There are two techniques to obtain the cost of equity as
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Exercise 14-2 1. Discount = Par value - Issue price = $90,000 - $85,431 = $4,569 2. Total bond interest expense over the life of the bonds |Amount repaid | | | Six payments of $3,600 |$ 21,600 | | Par value at maturity | 90,000 | | Total repaid
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Running Head: COMPANY VALUATION Company Valuation [Name of writer] [Name of institute] Company Valuation Introduction This is the case of a partnership business, Midwest Lightning Inc. (MLI) partnered between two entrepreneurs Jack Peterson and David Scott. Over the years these two partners have developed differences, which have escalated to the point of separation. Hence, in this assignment we are going to provide solution that would be required as the partnership
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Task 1 1 EARS # of times compounded National First 0.1025 10.25% Semiannually Regions Best 0.139947879 13.99% Monthly 2 The bank that would recommend is National First Bank because the rate is lower and the interest is componded semiannually. 3 Loan amount of $6,950,000 being offered by Regions Best at 8.6%APR for 5 yrs? Monthly payment amount will be $142,926.09 PMT ? PV $6,950,000 Interest 0.72% (8.6% divided by 12 months)
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Question 1 Nice Corp's last dividend was $1.55 and the directors expect to maintain the historic 5 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 8 percent for the next three years and the stock will then reach $22.50 per share. How much should you be willing to pay for the stock if you require a 15 percent return? Projected dividends next 3 years: Year 1 ($1.55 x 1.08) = $1.674 Year 2 ($1
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Advance Finance Insert Name Insert Institution Advance Finance Question 1: Periodic Interest Rates Calculating Periodic Rate and Effective Annual Interest Rate Applied Formula by Fouque and Papanicolaou (2011): Effective interest rate per period, (i) = ( 1 + ( r / m ) )m – 1 Effective interest rate for t periods, it = ( 1 + i )t - 1 or a single equation it = ( 1 + ( r / m ) )mt - 1. The rate per compounding period P = R / m, in percent. Where: r = R/100 and i = I/100 (p. 124)
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