Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 15.2, Problem 1EQ
Plot the
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You are evaluating a project that costs $69,000 today. The project has an inflow of $148,000 in one year and an outflow of $59,000 in two years.
What are the IRRs for the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
What discount rate results in the maximum NPV for this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
A trader has current sales at Rs Six lakhs per annum and an average collection period of 30 days wants to pursue a more liberal policy to improve sales. The selling price per unit is Rs.3, Average cost per unit is Rs.2.25 and the variable cost per unit is Rs 2. The current bad debt loss is 1%. Required return on additional investment is 20%. Assume as 360 days a year.
Calculate net profit for each proposed plans. Which of the above policies would you recommend for adoption based on the study made by Management Consultant.
Credit
Policy
Increase in
Collection Period
(Days)
Increase in
Sales
(₹)
Present Default
Anticipated
(%)
A
10
30000
1.5
B
20
48000
2
C
30
75000
Blossom Corp. management is investigating two computer systems. The Alpha 8300 costs $2,821,325 and will generate cost savings of $1,280,625 in each of the next five years. The Beta 2100 system costs $4,610,500 and will produce cost savings of $954,750 in the first three years and then $2 million for the next two years. The company’s discount rate for similar projects is 14 percent.What is the NPV of each system? (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.)
Should Blossom Choose the Alpha or Beta system?
Chapter 15 Solutions
Essentials Of Investments
Ch. 15.2 - Plot the rate of return to the call-plus-bills...Ch. 15.2 - Prob. 2EQCh. 15 - Prob. 1PSCh. 15 - Prob. 2PSCh. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Prob. 6PSCh. 15 - Prob. 7PSCh. 15 - The following diagram shows the value of a put...
Ch. 15 - You are a portfolio manager who uses Options...Ch. 15 - An investor purchases a stock for 38 and a put for...Ch. 15 - ll. Imagine that you are holding shares of stock,...Ch. 15 - Prob. 12PSCh. 15 - The common stock of the R.U.I.T. Corporation has...Ch. 15 - 14. The common stock of the C.A.L.L. Corporation...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Prob. 17PSCh. 15 - Prob. 18PSCh. 15 - Prob. 19PSCh. 15 - In what ways is owning a corporate bond similar to...Ch. 15 - Prob. 21PSCh. 15 - Consider the following options portfolio: You...Ch. 15 - Consider the following portfolio. You write a put...Ch. 15 - A put option with strike price 300 on the Acme...Ch. 15 - You buy a share of stock, mite a one-year call...Ch. 15 - Joe Finance has just purchased a stock-index fund,...Ch. 15 - You write a call option with X=50 and buy a call...Ch. 15 - Devise a portfolio using only call options and...Ch. 15 - Prob. 29CCh. 15 - Prob. 1CPCh. 15 - Prob. 2CPCh. 15 - Prob. 3CPCh. 15 - Prob. 4CPCh. 15 - Prob. 5CPCh. 15 - Prob. 1WM
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- ou are considering setting up a firm to produce widgets. The cost of the project is $30 today. The demand for widgets is uncertain. It can be either high or low with equal probability. When the demand is high, cash flows in t = 1 are $66 and when the demand is low, cash flows in t = 1 are $34. The discount rate is 10%. What is the NPV of the project? Suppose you can commission a study that tells you whether the demand for widgets will be high or low. The study takes one year to complete. That is, if you commission the study you must decide in t = 1 whether to invest. If you invest the cash flows will arrive in t = 2. What is the maximum amount you are willing to pay for the study today?arrow_forwardGrove Audio is considering the introduction of a new model of wireless speakers with the following price and cost characteristics. Sales price $ 450.00 per unit Variable costs 210.00 per unit Fixed costs 764,000 per year Assume that the projected number of units sold for the year is 4,750. Consider requirements (b), (c), and (d) independently of each other. What will the operating profit be? What is the impact on operating profit if the sales price decreases by 20 percent? Increases by 10 percent? What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent? Suppose that fixed costs for the year are 20 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?arrow_forwardYou are considering an investment to a project that can generate yearly income of $10,000. If there is a 25% chance that the market crashes so that the income drops by 30%, what would your expected income be? Please use hand calculations.arrow_forward
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- Consider the basic setup of the Diamond-Dybvig (1983) model. Specifically, there are three periods, denoted t = 0, 1, 2, a single consumption good, and an illiquid investment opportunity that pays gross return 1 if liquidated at t = 1, or gross return 2.2 if liquidated at t = 2. There are 500 people in the economy, each endowed with 1 unit of the consumption good at t = 0. At t = 1, exactly 200 will randomly realize that they need to consume at t = 1 (the early consumers), the remaining 300 people will need to consume at t = 2 (the late consumers). The utility derived from consumption is 1 − (1/c1) 2 for early consumers, 1−(1/c2) 2 for late consumers, where the subscript denotes the time of consumption. Suppose a bank can offer an asset that is more liquid, with gross returns Rd 1 = 1.33 and Rd 2 = 1.71 (depending on the time of liquidation). (i) Calculate the bank’s profit after t = 2. In other words, what amount of funds remains at the bank once all depositors have withdrawn? Now…arrow_forwardMinden Co. is considering buying new computer software that will assist customers in their product choices. The cost is $50,000. The benefit will be an additional cash inflow of $25,000 for four years, at which point the software will need replacing with a more modern version. The return on average investment is _______________. Question 15 options: 25.0% none of the options 42.5% 50.0% 30.0%arrow_forwardConsider the following project data. A marketing study that costs $200 will be conducted at t = 0. The best estimate now is that there is a 70 percent chance that the study will indicate potential and a 30 percent chance that it will not. If the study indicates potential, the firm will spend $500 at t = 1 to start production. If the firm starts production, the firm is confident that cash inflows will be $1,000 annually for two years (t=2 and 3). If the appropriate cost of capital is 10 percent, what is the project's expected NPV to the nearest dollar? A) $1,300 B) $923 C) $646 D) $586 E) $446arrow_forward
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