Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 3, Problem 8P
Your firm has a risk-free investment opportunity where it can invest $160,000 today and receive $170,000 in one year. For what level of interest rates is this project attractive?
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Your firm has a risk-free investment opportunity with an initial investment of $162,000 today and receive $175,000 in one year. For what level of interest rates is this project attractive? The project will be attractive when the interest rate is any positive value less than or equal to _______% ?
Your firm has identified three potential investment projects. The projects and their cash flows are shown
here:
Cash Flow Today
(millions)
-$10
$5
$20
Cash Flow in One Year
Project
(millions)
$20
$5
-$10
Suppose all cash flows are certain and the risk-free interest rate is 10%.
a. What is the NPV of each project?
b. If the firm can choose only one of these projects, which should it choose based on the NPV decision
rule?
c. If the firm can choose any two of these projects, which should it choose based on the NPV decision
rule?
ABC
Your firm has identified three potential investment projects. The projects and their cash flows are shown here:
Project
Cash Flow Today
Cash Flow in One Year
A
-10
20
B
5
5
C
20
-10
Suppose all cash flows are certain and the risk-free interest rate is 10%. (1) What is the NPV of each project? (2) If the firm can choose only one of these projects, which should it choose? (3) If the firm can choose any two of these projects, which should it choose?
Chapter 3 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
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- You are considering an investment. After a great deal of careful research you determine that the expected return on the investment is 15% per annum. You also estimate the beta to be 2.0. The risk-free rate of interest is 3% and the return on the market is expected to be 13%. Should you accept the project? Explain.arrow_forward2. Suppose there are two possible states for the economy over the next year, boom or bust, and these two states are equally likely to occur. An asset you may invest in has a payoff forecast of b160 million in the boom state and £64 million in the bust state. The risk-free rate is 20% and a risk premium of 20% is required for assets with similar risk features. What is the maximum price you would agree to pay for this asset today?arrow_forwardConsider an entrepreneur who plans to invest in a project that requires an initial investment of $1,800 this year. The project will generate either $1,600 or $4,200 next year. The cash flows of the project depend on whether the economy is weak or strong. Both scenarios are equally likely. The risk-free rate is 4% and the risk premium of the project is 12%. Assume perfect capital markets. Now assume that the entrepreneur will borrow $400 at 5% interest rate to finance the project. The cost of equity of the project is closest to: 16.60% 17.72% 18.29% 19.43% None of the abovearrow_forward
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