Chapter 20, Problem 2ST

McCann Company has identified an investment project with the following cash flows. a. If the discount rate is 11 percent, what is the present value of these cash flows? b. What is the present value at 18 percent? c. What is the present value at 29 percent?

If the available stable funding is 25M and the net stable funding ratio is at 15%, what could have been the required amount for stable funding?

Consider the following set of independent investment projects: (a) For a MARR of 10%, compute the net present worth for each project, and determine the accepta bility of each project.(b) For a MARR of 10%, compute the net future worth of each project at the end of each project period, and determine the acceptability of each project.(c) Compute the future worth of each project at the end of six years with variable MARRs as follows: 10% for n = 0 to n = 3 and 15% for n = 4 ton = 6.

Consider the following project balance profiles for proposed investment projects. Statement 1-For Project A, the cash now at the end of year 2 is $100.Statement 2-For Project C, its net future worth at the end of year 2 is $150.Statement 3-For Project B, the interest rate used is 25%.Statement 4-For Project A, the rate of return should be greater than 15%.Which of the statement(s) above is (are) correct?(a) Just Statements 1 and 2(b) Just Statements 2 and 3(c) Just Statements 1 and 3( d) Just Statements 2, 3, and 4

Using the rationale of the time value of money, demonstrate the difference between present and future values of a stream of cash-flows of a project that arise over a period of five  years (develop your own hypothetical project, with its own cash-flow tables and a discount/compound rate of your choice. (NB. Round discount/compound interest factors to the nearest two  decimal points).

An investor has $100,000 available for 1-year investment. The investor is weighing two options: a money market fund that gives a fixed annual return of 12% and an investment plan with an annual rate of return that can be regarded as a random variable with values that depend on prevailing economic conditions. Based on the second plan’s past history under a variety of economic conditions, a very reliable analyst has subjectively determined the following probabilities associated with several possible rates of return: Rate of Return  Probability 0.3                        0.20 0.25                      0.20 0.20                      0.30 0.15                       0.10 0.10                       0.10 0.05                      0.10 a) If you chose option 2, what is the probability that the rate of return will be less than that of the first option? Show work.

Two mutually exclusive proposals, each with a life of 5 years, are under consideration. MARR is 12%. Each proposal has the following cash flow profile: Determine which (if either) alternative the decision maker should select using the internal rate of return method.

Your firm uses the IRR method and asks you to evaluate the following mutually exclusive projects: Using the appropriate IRR method, evaluate these proposals assuming a required rate of return of 10 per cent. Compare your answer with the net present value method.

Wolff Enterprises must consider several investment projects, A through E, using the capital asset pricing model (CAPM) and its graphical representation, the security market line (SML). Relevant information is presented in the following table   ITEM RATE OF RETURN BETA Risk-free asset 9% 0.0 Market portfolio 14% 1.0 Project A - 1.5 Project B - 0.75 Project C - 2.00 Project D - 0.0 Project E - -0.50 Calculate (1) the required rate of return and (2) the risk premium for each project, given its level of nondiversifiable risk. Use your findings in part a to draw the security market line (required rate of return relative to nondiversifiable risk) Discuss the relative nondiversifiable risk of projects A through E. Assume that recent economic events have caused investors to become less risk-averse, causing the market return to decline to 12%. Calculate the new required returns fcor assets A through E and draw the new security market line on the same graph you drew for b. Compare your findings…