Questions from General Finance

Q: A project with a cash outlay now is followed by positive expected

A project with a cash outlay now is followed by positive expected cash flows in the future and a positive net present value. What does this information tell you about the project’s discounted payback...

Q: The market portfolio has an expected return of 9 percent with a

The market portfolio has an expected return of 9 percent with a 10 percent volatility. The risk-free rate is 4 percent. A stock has a 20 percent volatility and a correlation coefficient of minus 0.10...

Q: You want to test the speed with which stock market prices adjust

You want to test the speed with which stock market prices adjust to positive earnings’ announcements. Company A makes its earnings announcement on May 20 and Company B on June 16. Yo...

Q: The Southern Communication Corporation (SCC) has $1 billion of

The Southern Communication Corporation (SCC) has $1 billion of capital invested in several telecommunication projects that are expected to generate a pre-tax operating profit of $170 million next year...

Q: Equation 18.7 shows that market value added (MVA)

Equation 18.7 shows that market value added (MVA) of an investment project is the present value of the stream of the future economic value added (EVA) of the project. Because a firm can be viewed as a...

Q: Suppose there are no government zero-coupon bonds. If investors

Suppose there are no government zero-coupon bonds. If investors demand default- free zeros, outline the process that would create these zeros using government coupon-paying bonds. Illustrate the metho...

Q: Below are the last three years’ financial statements of Sentec Inc.,

Below are the last three years’ financial statements of Sentec Inc., a distributor of electrical fixtures. a. Compute Sentec’s working capital requirement (WCR) on...

Q: Fiona Berling’s division of Mcsystems generates a net operating profit after tax

Fiona Berling’s division of Mcsystems generates a net operating profit after tax, or NOPAT, of $1 million on an invested capital base of $1 million. The weighted average cost of capital of Ms Berling’...

Q: Astra Co. is considering introducing a bonus system based on economic

Astra Co. is considering introducing a bonus system based on economic value added (EVA) and has short-listed two bonus equations. The first one would simply compute the bonus as a percentage of EVA, s...

Q: Alvinstar Co. is considering investing in a new animal feed project

Alvinstar Co. is considering investing in a new animal feed project. The product will be a soup for cats to be sold in cans. Alvinstar plans to sell 100,000 cans a year for four years at a price of $4...