CHAPTER
USINGDISCOUNTEDCASHFLOWANALYSISTOMAKE
INVESTMENTDECISIONS
1. Cash Flows. A new project will generate sales of $74 million, costs of $42 million, and
depreciation expense of $10 million in the coming year. The firms tax rate is 35 percent.
Calculat
CHAPTER
PROJECTANALYSIS
1.
Sensitivity Analysis. Emperors Clothes Fashions can invest $5 million in a new plant for
producing invisible makeup. The plant has an expected life of 5 years, and expected sales
are 6 million jars of makeup a year. Fixed costs
CHAPTER
TIMEVALUEOFMONEY(CLASSEXERCISESII)
1. Jim Thomas borrows $70,000 at 12 percent interest toward the purchase of a
home. His mortgage is for 30 years.
a.
b.
How much will his annual payments be? (Although home payments are usually on
monthly basis,
CHAPTER
NPV&OTHERINVESTMENTCRITERIA
1. NPV/IRR. Consider projects A and B:
Projec
t
A
B
Cash Flows, In Dollars
C0
C1
C2
NPV
30,000
50,000
21,00
0
21,00
0
21,00
0
21,00
0
+
$6,446
+
$7,272
Calculate IRRs for A and B. Which project does the IRR rule suggest
CHAPTER
VALUINGSTOCKS
1. Dividend Yield. Favored stock will pay a dividend this year of $2.40 per share. Its
dividend yield is 8 percent. At what price is the stock selling?
2. Preferred Stock. Preferred Products has issued preferred stock with a $8 annua
1
Valuing Bonds
FM/ IBF
Athar Iqbal
1. A 5-year bond with a coupon rate of 4% has a face value of $1000. What is the annual
interest payment?
2. A 3-year bond with 10% coupon rate and $1000 face value yield to maturity is 8% .
Assuming annual coupon payme
CHAPTER
VALUINGBONDS
1. Bond Yields. If a bond with par value of $1,000 and a coupon rate of 8 percent is selling at a
price of $970, is the bonds yield to maturity more or less than 8 percent? What about the
current yield?
2. Bond Yields. A bond with par