Elinore is asked to invest $4,900 in a friend's business with the promise that the friend will repay $5,390 in one year's time. Elinore finds her best alternative to this investment, with similar risk, is one that will pay her $5,341 in one year's time. U.S. securities of similar term offer a rate of return of 6%. What is the opportunity cost of capital in this case? ... O A. 10% О в. 11% Ос. 9% O D. 6%

Elinore is asked to invest $4,900 in a friend's business with the promise that the friend will repay $5,390 in one year's time. Elinore finds her best alternative to this investment, with similar risk, is one that will pay her $5,341 in one year's time. U.S. securities of similar term offer a rate of return of 6%. What is the opportunity cost of capital in this case? ... O A. 10% О в. 11% Ос. 9% O D. 6%

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Economics Annual premiums are paid into a 3 year unit linked endowment policy where 98% of each premium is allocated to units in a fund that carries a 3% bid- offer spread and charges management fees of 0.75% of assets at the end of each policy year. The policy has a death benefit of the bid value of units payable at the end of the year of death subject to a minimum of £12,500. The survival benefit is the bid value of units at the end of the term. The life assurance company estimates that expenses are £95 per policy per year. (a) Produce projected revenue accounts for each year of a policy with an annual premium of £5,000 assuming the annual rate of mortality is 0.00498, an investment return of 6.9% per annum and an interest rate on cash balances of 3% per annum. (b) Does the life assurance company meet its internal profit margin objective of 5% on this policy if its risk discount rate is 5.5% per annum?
"A corporation is trying to decide whether to buy the patent for a product designed by another company. The decision to buy will mean an investment of $9.6 million, and the demand for the product is not known. If demand is light, the company expects a return of $2 million each year for the first three years and no return in the fourth year. If demand is moderate, the return will be $2.73 million each year for four years, and high demand means a return of $5.4 million each year for four years. It is estimated the probability of a high demand is 0.47, and the probability of a light demand is 0.21. The firm's interest rate is 15.7%.Calculate the expected present worth of the patent. Express your answer in millions of dollars. For example, if the answer is $12.3 million, enter 12.3. (All figures represent after-tax values.)"
As a manager of your company, you are considering to go for a project, with an initial outlay of $200,000. The project has a life of three years and yields (year-end) cash inflows of $ 100,000 in year-1, $150,000 in year-2 and $200,000 in year 3. What is the net present value of the project if the interest rate is 10 percent? Show your steps. Should you recommend to go for the project? Explain in details.
Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce annual net cash flows of $21,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether Bouvier should invest in the grill.
3
Suppose you are willing to pay $30 today for a share of stock which you expect to sell at the end of one year for $32. If you require an annual rate of return of 12 percent, what must be the amount of the annual dividend which you expect to receive at the end of year 1? Select the closest answer.
Assume that an investor is expecting to receive P606,060.00 at the end of 6 years. Compute for the total value of proceeds if it were to be received now under simple and compound discount. The current interest rate is at 16%.
Suppose an FI has a long position in zero-coupon bonds of seven years to maturity with a face value of $1,631,483. Today's yield on these bonds is 7.243 percent per year. These bonds are held as part of the trading portfolio. Suppose we define bad yield changes such that there is 1 chance in 20 (or a 5 percent chance) that the next day's yield increase (or shock) will exceed this given adverse move. Assuming normality and suppose that during the last year the mean change in daily yields on seven-year zero-coupon bonds was 0 percent while the standard deviation was 10 basis points. a) Estimate the dollar market value of position b) Potential adverse daily yield move c) Estimate price volatility d) Estimate daily earnings at risk e) Estimate value at risk over a period of 10 days
Stock in Synergistic Corporation is selling at $20 per share. It had earnings of $4 a share and a dividend yield of 4 percent. What is the dividend? a)$0.04 b)$0.20 c)$1.00 d)$120.
Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000. Assume the cost of capital is 10 percent. Required: 1. Break the $810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
A 33.
Calculate the value of a stock that is expected to pay a constant dividend of $1.05per year if the required return is 11%.