EBK CONTEMPORARY ENGINEERING ECONOMICS
6th Edition
ISBN: 8220101336736
Author: Park
Publisher: PEARSON
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Chapter 13, Problem 20P
To determine
Calculate the value of investment opportunity.
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You are considering the purchase of a certain stock. You expect to own the stock for the next four years. The stock's current market price is $24.50, and you expect to sell it for $55 in four years. You also expect the stock to pay an annual dividend of $1.25 at the end of Year 1, $1.35 at the end of Year 2, $1.45 at the end of Year 3, and $1.55 at the end of Year 4. What is your expected return from this investment? Please show all the steps, including the equation(s).
The price of a non-dividend paying stock is currently S = 100. Over the next year, it is expected to go up by 25% or down by 20%. The risk-free interest rate is r = 5% per annum with continuous compounding. How many units of the stock should you include in a portfolio containing a European Put option that gives the right to sell 100 units of the stock at a strike price K = 100 each, for the result of this portfolio to be independent of the price of the stock in 1-year time? Select one.
a. 0
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c. 44
d. 33
e. 11
Consider six mutually exclusive and indivisible investment alternatives under evaluation by TranSystems in their bridge and structure design group. At any time TranSystems chooses to exit the investment, their initial financial outlay will be refunded, in addition to the annual returns earned. Based on the data shown below and a MARR of 10 percent, determine the preferred alternative. (Note: There is no planning horizon specified, so pick any number of years you like—the optimum portfolio and the IRR will remain the same, since the ‘‘initial investment’’ and the ‘‘salvage value’’ are the same, and the annual returns are constant each year. The PW will differ depending upon number of years selected, and yet will be a consistent measure.)
Alternative 1 2 3 4 5 6
Initial Investment $25,000 $35,000 $30,000 $40,000 $60,000 $50,000
Annual Return $2,600 $3,750 $3,050 $4,775 $6,750 $5,850
a. Which alternative should TranSystems select? Use the IRR method to determine the preferred alternative.…
Chapter 13 Solutions
EBK CONTEMPORARY ENGINEERING ECONOMICS
Ch. 13 - Prob. 1PCh. 13 - Prob. 2PCh. 13 - Prob. 3PCh. 13 - Prob. 4PCh. 13 - Prob. 5PCh. 13 - Prob. 6PCh. 13 - Prob. 7PCh. 13 - Prob. 8PCh. 13 - Prob. 9PCh. 13 - Prob. 10P
Ch. 13 - Prob. 11PCh. 13 - Prob. 12PCh. 13 - Prob. 13PCh. 13 - Prob. 14PCh. 13 - Prob. 15PCh. 13 - Prob. 16PCh. 13 - Prob. 17PCh. 13 - Prob. 18PCh. 13 - Prob. 19PCh. 13 - Prob. 20PCh. 13 - Prob. 21PCh. 13 - Prob. 22PCh. 13 - Prob. 23PCh. 13 - Prob. 24PCh. 13 - Prob. 25PCh. 13 - Prob. 1STCh. 13 - Prob. 2STCh. 13 - Prob. 3STCh. 13 - Prob. 4ST
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