A company’s losses of a particular type are to a reasonable approximation normally distributed with a mean of $120 million and a standard deviation of $30 million. The 1-year risk-free rate is 4%. Determine the cost of the ff a contract that pays $100 million in 1 years’ time if losses exceed $150 million. Briefly discuss.

Q: dirt Pete Mining expects receipts from a mining site to decdine according to an arithmetic gradient…

A: Solution Given Current year receipt 290893 Useful life 7 years Interest rate 13%…

Q: 2. During the current year, Black Rose Inc. had an investment of P 200,000 that is expected to…

A:

Q: Determine the duration gap of a financial institution with an average duration of assets of 3.2…

A: Duration Gap=Duration of assets- Duration of laibilties x Laibilties/Assets

Q: How many years must the cash flows last for the investment to be acceptable?

A: Time value of money:   Any amount invested today earns an additional income, called interest…

Q: A firm has £ 100m cash in hand and a debt obligation of £ 100m due at the end of the year. With this…

A: The question is related to Capital Budgeting. The details are given.    Since you have posted a…

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A: Accounts receivables are those customer accounts to whom business has made credit sales on account…

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A: This is the concept of time value of money. Present Worth is the present value of the future…

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A: Interpretation: Annual Operating and Maintenance Expenses at end of year 1 = $195,000 Annual…

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A: Duration analysis of interest rate risk is a quantitative approach that measures the sensitivity of…

Q: An investment product promises to pay $25,458 at the end of nine years. If an investor feels this…

A: Annuity: The fixed amount paid or received in equal time periods is referred to as annuity.Present…

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A: Given is: As a result of a slowdown in operations, Mercantile Stores is offering to employees who…

Q: A company is considering an investment that will cost $759,000 and have a useful life of 6 years.…

A: NPV is the net current worth of cash flows that are expected to occur in the future.

Q: A project's annual revenues will be $5,881,947 the first year and will decrease by $81,248 per year…

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Q: The management of Bravo Ltd wishes to determine a suitable discount rate of the evaluation of new…

A: a. Cost of Debt (KD) Cost of Debt = i (1-t)/NP Where, i = Interest = TZS 1000 x 8% = TZS 80  t = Tax…

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A: Capital Budgeting and capital budgeting techniques: The process of evaluating several prospective…

Q: Grayson Company is considering a purchase of equipment that costs $62,000 and is expected to offer…

A: Capital Budgeting Decision: In most cases, a capital budgeting choice is either a yes or no decision…

Q: An investment of P3M can be made in a business that will produce uniform annual revenue of P1.2M for…

A: Given data, Initial investment = P3M Annual income =P1.2M Salvage value =10% of the investment…

Q: As a final point, Coleman Ltd insist that they should have the right to walk away from the contract…

A:

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A: given, PV = 150,000 r=8% n = 12 years withdrawal year = 6

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A: Liquidity Risk When the bank or financial institution is unable to meet its short-term debt…

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Q: You are faced with a decision on an investment proposal. Specifically, the estimated additional…

A: MARR:  It is the minimum expected rate of return  and evaluated  by comparing it  with IRR (Internal…

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A: Future worth is the value of the present cash flows after certain period. Due to interest that can…

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Q: TG Instruments is considering an investment of $500,000 in a new product line.  The company will…

A: solution given Investment required $500000 desired rate of return 15% Expected…

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A: Capital project appraisal involves the evaluation of profitability and liquidity position based on…

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A: The break-even investment: The break-even investment is the investment value that is equal to the…

Q: A company requires an initial investment of $75,000 with a residual value of $12,500 after five…

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Q: A firm needs to either buy or lease $200,000 worth of equipment. The equipment has a life of 5 years…

A: Leased at a cost = $45,000Tax shield = Lease payment ×Tax rateTax shield = 45000 ×33%Tax shield =…

Q: You invested $100,000 in a project and received $40,000 at n = 1, $40,000 atn = 2, and $30,000 at n…

A: GIVEN, INITIAL INVESTMENT = $100,000 1 40,000 2 40,000 3 30,000 R=10%

Q: An investment of P3M can be made in a business that will produce uniform annual revenue of P1.2M for…

A: Required Return = 20% Cash Flows: Year Cash Flow Reference 0 -3,000,000 First Cost 1 950,000…

Q: An investment requires an initial disbursement of €2,500,000 and the duration of the project is 3…

A: Capital budgeting indicates the evaluation of the profitability of possible investments and projects…

Q: A company is deciding whether to purchase new equipment that costs $300,000.00. Management estimates…

A: Initial cash outflow = $300,000 Annual cash inflow (1-4 years) = $ 160,000 Salvage value = $60,000

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A: The given problem can be solved using NPV function in excel.

Q: Bonita Inc. is considering a capital investment proposal that costs $227,500 and has an estimated…

A: Net present value is the sum of future cashflows - initial investment

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A: Given: Particulars Amount Cost of capital 8% Acquire equipment $146,825 Years 5 Rent…

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Q: A mining firm is offered for sale for Php 5.7M. On the basis of estimated production, an annual rate…

A: Given, Sale value of firm = Php 5,700,000 (P) Expected rate of return = 6.7% (r) No. of years = 10…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.