1. Consider a world with two points in time, to and t₁. A corporation has £1.0 million at to. The corporation has three projects it can invest in. The investments at to and payoffs at t₁ are given in the table below. Assume that money can borrowed and lent to the bank at 4% over this period. Project Investment (£) Payoff (£) 132,000 357,000 441,000 A B C (a) Discuss what the main objective of a corporation should be. Outline your assumptions. (b) Calculate the Internal Rate of Return and NPV for each of the three (c) (d) 120,000 350,000 420,000 projects. Which projects sho orporation undertake? Assume the firm pays out dividends of £0.5 million at to. What is the largest amount that the firm can distribute in dividends at t₁?
1. Consider a world with two points in time, to and t₁. A corporation has £1.0 million at to. The corporation has three projects it can invest in. The investments at to and payoffs at t₁ are given in the table below. Assume that money can borrowed and lent to the bank at 4% over this period. Project Investment (£) Payoff (£) 132,000 357,000 441,000 A B C (a) Discuss what the main objective of a corporation should be. Outline your assumptions. (b) Calculate the Internal Rate of Return and NPV for each of the three (c) (d) 120,000 350,000 420,000 projects. Which projects sho orporation undertake? Assume the firm pays out dividends of £0.5 million at to. What is the largest amount that the firm can distribute in dividends at t₁?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please help me with part D. Thank you so much
Transcribed Image Text:1. Consider a world with two points in time, to and t₁. A corporation has £1.0 million at
to.
The corporation has three projects it can invest in. The investments at to and payoffs at
t₁ are given in the table below. Assume that money can borrowed and lent to the bank
at 4% over this period.
Project Investment (£) Payoff (£)
A
B
C
(a)
(c)
(d)
120,000
350,000
420,000
Discuss what the main objective of a corporation should be. Outline
your assumptions.
(b)
Calculate the Internal Rate of Return and NPV for each of the three
projects.
132,000
357,000
441,000
Which projects shorporation undertake?
Assume the firm pays out dividends of £0.5 million at to. What is the
largest amount that the firm can distribute in dividends at t₁?
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