ps7 - FIN300 Managerial Finance Professor H. Wang Problem...

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FIN300 Managerial Finance Professor H. Wang Problem Set #7 Due: Friday, 4/23, 2010 Please make sure to write clearly the name of each member in the group. Please turn in your solutions at the beginning of the lecture on the due date. Late submissions or submissions by groups larger than four students will not be accepted. 1. You have the opportunity to make an investment that costs $900,000. If you make this investment now, you will receive $120,000 one year from today, $250,000 two years from today, and $800,000 three years from today. The appropriate discount rate for this investment is 12 percent. a. Should you make the investment? b. What is the net present value (NPV) of this opportunity? c. If the discount rate is 11 percent, should you invest? Compute the NPV to support your answer. 2. Lizpaz Inc. is a levered firm with a debt-to-equity ratio of 0.25. The beta of the common stock is 1.15, while the beta of the debt is 0.3. The market-risk premium is 10 percent and the risk-free rate is 6 percent. The corporate tax rate is 35
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ps7 - FIN300 Managerial Finance Professor H. Wang Problem...

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