Questions from General Finance

Q: You expect that your daughter will go to college ten years from

You expect that your daughter will go to college ten years from now. Taking account of inflation, you estimate that you will need $160,000 to support her during her years in college. Assume an interes...

Q: Starline & Co. has no debt, and its cost of

Starline & Co. has no debt, and its cost of equity is 14 percent. It can borrow at 8 percent. The corporate tax rate is 40 percent. a. Calculate the cost of equity and the weighted average cost of cap...

Q: Consider the three projects A, B, and C. The

Consider the three projects A, B, and C. The cost of capital is 12 percent, and the projects have the following expected cash flows: a. What is the internal rate of return of the three projects? b. Wh...

Q: You must choose between the two projects whose cash flows are shown

You must choose between the two projects whose cash flows are shown below. The projects have the same risk. a. Compute the net present value (NPV) and the profitability index (PI) for the two projects...

Q: You are currently a member of a club whose annual membership fee

You are currently a member of a club whose annual membership fee is $2,000. The fee is expected to increase by 3 percent per year. a. Would you buy for $65,000 a lifelong family membership to the club...

Q: The Alpha Printer Company is considering the purchase of a $2

The Alpha Printer Company is considering the purchase of a $2 million printing machine. Its economic life is estimated at five years, and it will have no resale value after that time. The machine woul...

Q: Your brother-in-law offers you the opportunity to invest

Your brother-in-law offers you the opportunity to invest $15,000 in a project that he promises will return $17,000 at the end of the year. Because you have only $3,000 in cash, you will have to borrow...

Q: Suppose you have decided to set up a personal pension fund for

Suppose you have decided to set up a personal pension fund for your retirement. You have just turned 25. You expect to retire at age 65 and believe it is reasonable to count on living at least 20 year...

Q: Maintainit Inc. is asked to submit a bid for watering and

Maintainit Inc. is asked to submit a bid for watering and spraying trees in a housing development for the next five years. To provide this service, Maintainit would have to buy new equipment for $100,...

Q: The company’s financial manager and accountant were arguing over how to properly

The company’s financial manager and accountant were arguing over how to properly take account of inflation when analyzing capital investment projects. The accountant typically included estimates of pr...