Project #69200 - finance(using capital budgeting)

    Consider the following two investments for all five of the following questions.

 

               Costs     Benefits

 

      Common                 $1,200   Yearly dividends, next dividend, one year

      Stock A       from today, expected to be $1.08/share and

   (100 shares)      expected to grow at three percent per year. 

 

       Bond B                  $1,000              Yearly interest payments of $125 per year,

       beginning next year and ending in ten years. 

       Principal of $1,000 to be repaid in ten years.

 

    (2) 1.  Please calculate the IRRs of both investments.   Please show your work.

 

 

 

 

 

 

 

 

 

    (2)    2.  Please calculate the NPVs of both investments if 10 percent per year is the appropriate 

           discount rate.        Please show your work.

 

 

 

 

 

 

     (1)     3.  Which investment do you preferred?     Why?   Please be specific and complete.

 

 

 

(1) 4.  What is true about the two projects with respect to the firm if a Fisherian 

                reinvestment rate exists?   Please be specific and complete.

 

 

 

*****************************EXTRA CREDIT**********************************

 

(2) 5.  Please graph (on the back of this page) the NPVs of these investments as a function 

          of various discount rates.  Please label both axis, the points where the lines cross the 

          horizontal axis and the NPVs when the appropriate discount rate is 10 %.  Finally, 

          please show (on your graph) the Fisherian reinvestment rate of the two projects.

 

Must show all work using the formulas of IRR or NPV or formulas necessary to complete each question on capital budgeting. PLease do not use excel. most solve step by step.

Subject Business
Due By (Pacific Time) 04/30/2015 11:40 pm
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