Questions from Corporate Finance

Q: Here are two useful rules of thumb. The “Rule

Here are two useful rules of thumb. The “Rule of 72” says that with discrete compounding the time it takes for an investment to double in value is roughly 72/interest rate (in percent). The “Rule of...

Q: You own an oil pipeline that will generate a $2 million

You own an oil pipeline that will generate a $2 million cash return over the coming year. The pipeline’s operating costs are negligible, and it is expected to last for a very long time. Unfortunately,...

Q: True or false? a. All stocks in an equivalent

True or false? a. All stocks in an equivalent-risk class are priced to offer the same expected rate of return. b. The value of a share equals the PV of future dividends per share.

Q: Each of the following formulas for determining shareholders’ required rate of return

Each of the following formulas for determining shareholders’ required rate of return can be right or wrong depending on the circumstances: a. r = DIV1 / P0 + g b. r = EPS1 /P0 For each formula const...

Q: Alpha Corp’s earnings and dividends are growing at 15% per year

Alpha Corp’s earnings and dividends are growing at 15% per year. Beta Corp’s earnings and dividends are growing at 8% per year. The companies’ assets, earnings, and dividends per share are now (at dat...

Q: True or false? a. A project’s depreciation tax shields

True or false? a. A project’s depreciation tax shields depend on the actual future rate of inflation. b. Project cash flows should take account of interest paid on any borrowing undertaken to finance...

Q: Look again at the financial forecasts for Growth-Tech given in

Look again at the financial forecasts for Growth-Tech given in Table 4.4. This time assume you know that the opportunity cost of capital is r = .12 (discard the .09...

Q: Compost Science, Inc. (CSI), is in the business

Compost Science, Inc. (CSI), is in the business of converting Boston’s sewage sludge into fertilizer. The business is not in itself very profitable. However, to induce CSI to remain in business, the M...

Q: If you invest $100 at an interest rate of 15

If you invest $100 at an interest rate of 15%, how much will you have at the end of eight years?

Q: Machines A and B are mutually exclusive and are expected to produce

Machines A and B are mutually exclusive and are expected to produce the following real cash flows: The real opportunity cost of capital is 10%. a. Calculate the NPV of each machine. b. Calculate the e...