Investment Questions In Tutorial Library

This is Tutorial details page

TITLE: Investment Questions

CLASS / COURSE: FIN EC Week10

QUESTION DESCRIPTION:

QUESTION 1

Use the table for the question(s) below to evaluate two investments.

 

Year

A

B

0

-$150

-$225

1

40

175

2

80

125

3

100

-50

 

If the interest rate is 10%, then which investment(s), if any, would you take and why?

 

QUESTION 2

Joe just inherited the family business, and having no desire to run the family business, he has decided to sell it to an entrepreneur.  In exchange for the family business, Joe has been offered an immediate payment of $100,000.  Joe will also receive payments of $50,000 in one year, $50,000 in two years, and $75,000 in three years.  The current market rate of interest for Joe is 6%.


In terms of present value, how much will Joe receive for selling the family business?

 

QUESTION 3

Omicron Technologies has $50 million in excess cash and no debt.  The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends.  Omicrons unlevered cost of capital is 10% and there are 10 million shares outstanding.  Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock.

a. What is Omicron's enterprise value?

b. Including its cash, what is Omicron's total market value?

 

QUESTION 4

Consider two firms, With and Without, that have identical assets that generate identical cash flows. Without is an all-equity firm, with 1 million shares outstanding that trade for a price of $24 per share. With has 2 million shares outstanding and $12 million dollars in debt at an interest rate of 5%.


According to MM Proposition 1, the stock price for With is closest to:

 

QUESTION 5

Consider an economy with two types of firms, S and I.  S firms always move together, but I firms move independently of each other.  For both types of firms there is a 70% probability that the firm will have a 20% return and a 30% probability that the firm will have a -30% return.

a. What is the expected return for an individual firm?


b. What is the standard deviation for the return on an individual firm? 

SOLUTION DESCRIPTION: Completed Solution is attached. Click on Buy button and then download file to get full solution.

SUBJECTS / CATEGORIES:
1. Finance
2. Financial Management
3. Corporate Finance
4. Investment and Portfolio Management

$4.00 USD

Press BUY button to download solution of this Question.

Buy

Comment

    No comment on this tutorial.