Problem 5. Your company is AA-rated by a credit-rating agency, and must borrow money according to the table 1 provided if it will start several projects that have been proposed. See the following table 2 for each project proposals project description, their duration and anticipated return: Table 1. Maturity 2 yr AA 2 yr A 5yr AAA 5yr AA 5yr A 10yr AAA 10yr AA 10yr A 20yr AAA 20yr AA 20yr A Rate, i% 1.32 1.48 1.94 2.22 2.51 2.69 3.26 3.53 3.97 4.21 4.42 Table 2. Projects a. New Delivery Vehicles b. Updated Computer Hardware c. Updated Computer Software d. Corporate Rebranding e. Relocate Headquarters f. Parts Inventory System Which of the projects shown in table 2 should we undertake and why? Duration (yrs) 5 yrs 2 yrs 5 yrs. 10 yrs 20 yrs 10 yrs Expected Return, ROR (%) 9% 1% 3% 3.5% 6% 3%
Problem 5. Your company is AA-rated by a credit-rating agency, and must borrow money according to the table 1 provided if it will start several projects that have been proposed. See the following table 2 for each project proposals project description, their duration and anticipated return: Table 1. Maturity 2 yr AA 2 yr A 5yr AAA 5yr AA 5yr A 10yr AAA 10yr AA 10yr A 20yr AAA 20yr AA 20yr A Rate, i% 1.32 1.48 1.94 2.22 2.51 2.69 3.26 3.53 3.97 4.21 4.42 Table 2. Projects a. New Delivery Vehicles b. Updated Computer Hardware c. Updated Computer Software d. Corporate Rebranding e. Relocate Headquarters f. Parts Inventory System Which of the projects shown in table 2 should we undertake and why? Duration (yrs) 5 yrs 2 yrs 5 yrs. 10 yrs 20 yrs 10 yrs Expected Return, ROR (%) 9% 1% 3% 3.5% 6% 3%
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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Transcribed Image Text:Problem 5.
Your company is AA-rated by a credit-rating agency, and must borrow money according to the table 1
provided if it will start several projects that have been proposed. See the following table 2 for each project
proposals project description, their duration and anticipated return:
Table 1.
Maturity
2 yr AA
2 yr A
5yr AAA
5yr AA
5yr A
10yr AAA
10yr AA
10yr A
20yr AAA
20yr AA
20yr A
Rate, 1%
1.32
1.48
1.94
2.22
2.51
2.69
3.26
3.53
3.97
4.21
4.42
Table 2.
Projects
New Delivery
Vehicles
b. Updated Computer
Hardware
а.
C. Updated Computer
Software
d. Corporate
Rebranding
e. Relocate
Headquarters
f. Parts Inventory
System
Which of the projects shown in table 2 should we undertake and why?
Duration
(yrs)
5 yrs
2 yrs
5 yrs
10 yrs
20 yrs
10 yrs
Expected
Return,
ROR (%)
9%
1%
3%
3.5%
6%
3%
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