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If the net future worth is positive, indicating a surplus, we should accept the investment. True or false?
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- An oil company is considering drilling in the Gulf at a current cost of $400,000 with an expected profit of $500,000 in three years. The current market rate of interest is 10 percent. Should the company make the investment? Multiple Choice No, the present value of the profit is less than the present value of the cost.. No, the future value of the profit is less than the present value of the cost. Yes, the present value of the profit is greater than the present value of the cost.. Yes, the future value of the profit is greater than the present value of the cost.Rent reviews are conducted to ensure that the net income adds value to the commercial real estate investment. True / FalsePATTS is deciding which of the two investments to take. Option A, total costs = $75,000,000 and the expected benefits = $95,000,000. Option B, total costs = $36,000,000 and the expected benefits = $60,000,000. Which option PATTS should choose?
- Suppose that you invest $50,000 into a downpayment on a $250,000 house, which has a price appreciation of 3% per year. Your mortgage is fixed at $ 36,000 per year, and your tenants pay you $24,000 per year. Property taxes, maintenance, and other expenses cost $5,000 per year. Suppose that after 25 years, you sell your property. Would it have been better to invest $ 50,000 in the stock market, assuming it has returns of 9% per year over the same time period (25 years)? Why? Show your calculations and justify your answer. For the purposes of this question, suppose that inflation is zero.Stock ABC has a Forward for December at: $450, Is it reasonable that A PUT option on ABC, with a strike of $500, costs $45? A. No because the minimum intrinsic is $50. B. No, because $35 feels low for a stock with such a high price per share. C. Yes because Intrinsic is $40, Extrinsic is $5 D. Yes because it depends on the distribution; that is defined by the volatility and time to maturityDescribe the net future worth of the project?
- An investor believes that the U.S. dollar will rise in value relative to the Japanese yen. The same investor is considering two investments with identical risk and return characteristics. One stock is trading in yen in Japan and the other stock is a stock trading in dollars in the United States. Should the investor purchase the Japanese stock?The more risky future options or alternatives are a) the less rational people will necessarily be. b) the more future values must be discounted to obtain their present values. c) the greater their present values. d) the greater their net values in the future.Based on increasing gas prices in the United States
- You are considering investing in one of two projects, which have the following returns and probabilities of occurrence: (a) Compute the mean return for each project.(b) Compute the variance of return for each project.(c) Which project would you prefer, and why?"A corporation is trying to decide whether to buy the patent for a product designed by another company. The decision to buy will mean an investment of $9.6 million, and the demand for the product is not known. If demand is light, the company expects a return of $2 million each year for the first three years and no return in the fourth year. If demand is moderate, the return will be $2.73 million each year for four years, and high demand means a return of $5.4 million each year for four years. It is estimated the probability of a high demand is 0.47, and the probability of a light demand is 0.21. The firm's interest rate is 15.7%.Calculate the expected present worth of the patent. Express your answer in millions of dollars. For example, if the answer is $12.3 million, enter 12.3. (All figures represent after-tax values.)"Suppose you’re evaluating a new project costing 125 and yielding an expected payoff of 75 for the two subsequent years. You know that the market(portfolio) rate is 0,10 that the covariance of the new investment’s payoff with the market portfolio is 0,2 and that the variance of the market payoff is 0,1. You also know that the risk-free rate is 0,05. Would you accept the project if you do not account for the risk embodied in the new project? Why? What if you probably accounted for risk, by using CAPM?