FOUND.OF FINANCIAL MANAGEMENT-ACCESS
17th Edition
ISBN: 9781260519969
Author: BLOCK
Publisher: MCG
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Textbook Question
Chapter 12, Problem 17P
The Hudson Corporation makes an investment of
following cash flow:
a. What is the
b. What is the
c. In this problem, would you make the same decision under both parts a and b?
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Consider two assets with the following cash flow streams:Asset A generates $4 at t=1, $3 at t=2, and $10at t=3. Asset B generates $2 at t=1, $X at t=2, and $10at t=3.Suppose X=6 and the interest rate r is constant.
(a)For r=0.1, calculate the present value of the two assets.
(b)Determine the set of all interest rates {r} such that asset A is more valuable than asset B.
(c)Draw the present value of the assets as a function of the interest rate.
(d)Suppose r=0.2.Find the value X such that the present value of asset B is 12.
(e)Suppose the (one-period) interest rates are variable and given as follows: r01=0.1, r12=0.2, r23=0.3. Calculate the yield to maturity of asset A.
Average Rate of Return Method, Net Present Value Method, and Analysis for a service company
The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows:
Front-End Loader
Year
1
2
3
4
5
Total
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3
4
5
6
7
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9
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0.943
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0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
10%
Net Cash
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0.909
0.826
0.751
$172,000
172,000
172,000
172,000
172,000
$860,000
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0.712
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0.683
0.636
0.572
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0.361
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0.870
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Operating
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Consider two assets with the following cash flow streams:
Asset A generates $4 at t=1, $3 at t=2, and $10 at t=3.
Asset B generates $2 at t=1, $X at t=2, and $10 at t=3.
Suppose X=6 and the interest rate r is constant.
For r=0.1, calculate the present value of the two assets.
Determine the set of all interest rates {r} such that asset A is more valuable than asset
Draw the present value of the assets as a function of the interest rate.
Suppose r=0.2. Find the value X such that the present value of asset B is 12.
Suppose the (one-period) interest rates are variable and given as follows: r01=0.1,r12=0.2, r23=0.3. Calculate the yield to maturity of asset A. (You can use Excel or ascientific calculator to find the solution numerically.)
Chapter 12 Solutions
FOUND.OF FINANCIAL MANAGEMENT-ACCESS
Ch. 12 - Prob. 1DQCh. 12 - Why does capital budgeting rely on analysis of...Ch. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - What does the term mutually exclusive investments...Ch. 12 - Prob. 6DQCh. 12 - If a corporation has projects that will earn more...Ch. 12 - What is the net present value profile? What three...Ch. 12 - How does an asset’s ADR (asset depreciation...Ch. 12 - Assume a corporation has earnings before...
Ch. 12 - Assume a corporation has earnings before...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Assume a firm has earnings before depreciation and...Ch. 12 - Al Quick, the president of a New York Stock...Ch. 12 - Prob. 6PCh. 12 - Prob. 7PCh. 12 - Assume a 90,000 investment and the following cash...Ch. 12 - Prob. 9PCh. 12 - X-treme Vitamin Company is considering two...Ch. 12 - You buy a new piece of equipment for 16,230, and...Ch. 12 - Prob. 12PCh. 12 - Home Security Systems is analyzing the purchase of...Ch. 12 - Aerospace Dynamics will invest 110,000 in a...Ch. 12 - The Horizon Company will invest 60,000 in a...Ch. 12 - Skyline Corp. will invest 130,000 in a project...Ch. 12 - The Hudson Corporation makes an investment of ...Ch. 12 - The Pan American Bottling Co. is considering the...Ch. 12 - You are asked to evaluate the following two...Ch. 12 - Turner Video will invest 76,344 in a project. The...Ch. 12 - The Suboptimal Glass Company uses a process of...Ch. 12 - Keller Construction is considering two new...Ch. 12 - Davis Chili Company is considering an investment...Ch. 12 - Telstar Communications is going to purchase an...Ch. 12 - Assume 65,000 is going to be invested in each of...Ch. 12 - The Summit Petroleum Corporation will purchase an...Ch. 12 - Oregon Forest Products will acquire new equipment...Ch. 12 - Universal Electronics is considering the purchase...Ch. 12 - Prob. 30PCh. 12 - Prob. 31PCh. 12 - Prob. 32PCh. 12 - Hercules Exercise Equipment Co. purchased a...Ch. 12 - Prob. 2WECh. 12 - Returning to TXN’s summary page, record the...
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