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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