Questions from Corporate Finance

Q: Innovation Company is thinking about marketing a new software product. Upfront

Innovation Company is thinking about marketing a new software product. Upfront costs to market and develop the product are $5 million. The product is expected to generate profits of $1 million per yea...

Q: You own a coal mining company and are considering opening a new

You own a coal mining company and are considering opening a new mine. The mine itself will cost $120 million to open. If this money is spent immediately, the mine will generate $20 million for the nex...

Q: Your firm is considering a project that will cost $4.

Your firm is considering a project that will cost $4.55 million upfront, generate cash flows of $3.5 million per year for three years, and then have a cleanup and shutdown cost of $6 million in the fo...

Q: You have an opportunity to invest $100,000 now in

You have an opportunity to invest $100,000 now in return for $80,000 in one year and $30,000 in two years. If your cost of capital is 9%, what is the NPV of this investment?

Q: You have just been offered a contract worth $1 million per

You have just been offered a contract worth $1 million per year for five years. However, to take the contract, you will need to purchase some new equipment. Your discount rate for this project is 12%....

Q: You are getting ready to start a new project that will incur

You are getting ready to start a new project that will incur some cleanup and shutdown costs when it is completed. The project costs $5.4 million upfront and is expected to generate $1.1 million per y...

Q: You are considering investing in a new gold mine in South Africa

You are considering investing in a new gold mine in South Africa. Gold in South Africa is buried very deep, so the mine will require an initial investment of $250 million. Once this investment is made...

Q: You are considering making a movie. The movie is expected to

You are considering making a movie. The movie is expected to cost $10 million upfront and take a year to make. After that, it is expected to make $5 million in the year it is released and $2 million f...

Q: You are choosing between two projects, but can only take one

You are choosing between two projects, but can only take one. The cash flows for the projects are given in the following table: a. What are the IRRs of the two projects? b. If your discount rate is 5%...

Q: You are deciding between two mutually exclusive investment opportunities. Both require

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end o...