Question: Which of the following transactions will increase a corporation's operating returns on assets? a. sell stock and use the money to pay off some long-term debt. b. sell 10-year bonds and use the money to pay off current liabilities. c. negotiate a new contract that lowers raw material costs by 10%. d. increase sales by 10%. Choose one option and explain.
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- This question will compare two different arbitrage situations. Recall that arbitrage should equalize rates of return. We want to explore what this implies about equalizing prices. In the first situation, two assets, A and B, will each make a single guaranteed payment of $100 in 1 year. But asset A has a current price of $80 while asset B has a current price of $90.a. Which asset has the higher expected rate of return at current prices? Given their rates of return, which asset should investors be buying and which asset should they be selling?b. Assume that arbitrage continues until A and B have the same expected rate of return. When arbitrage ceases, will A and B have the same price?Next, consider another pair of assets, C and D. Asset C will make a single payment of $150 in one year while D will make a single payment of $200 in one year. Assume that the current price of C is $120 and that the current price of D is $180.c. Which asset has the higher expected rate of return at current…A company borrows $4 to finance a project. It has two choices when beginning the project. The first option has potential payoff of either $2 or $8 (both equally likely). The second option has potential payoffs of $0 or $16 (both equally likely). The lender would prefer the _____ option because the expected value of the first option is option is and the expected value of the second first; $3; $2 first; $8; $5 second; $5; $8 second; $16; $4Assume that a company is considering purchasing a machine for $50,500 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice C O 0.95. 1.01. 1.05. 1.11.
- 3. Compute Project Y’s accounting rate of return. The numerator drop down options are: accounts receivable, annual income, average investment, average total assets, cost of goods sold, current assets, current liabilities, net sales, total assets The denominator dropdown options are: accounts receivable, annual income, average investment, average total assets,Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. If the firm uses a 7 percent discount rate for their production systems. Year System 1 System 2 0 -$12,800 -$42,700 1 12,800 32,300 2 12,800 32,300 3 12,800 32,300 What are the payback periods for production systems 1 and 2? (Round answers to 2 decimal places, e.g. 15.25.) Payback period of System 1 is years and Payback period of System 2 is years If the systems are mutually exclusive and the firm always chooses projects with the lowest payback period, in which system should the firm invest? The firm should invest in .system 1 system 2Suppose the following two independent investment opportunities are available to a company. The appropriate discount rate is 8 percent. Year O 1 2 3 Project Alpha -$4,500 b. 2,300 2,200 1,450 a. Compute the profitability index for each of the two projects. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project Alpha Project Beta Project Beta -$ 6,100 1,350 4,500 4,000 Profitability Index Which project(s), if either, should the company accept based on the profitability index rule? Project Alpha O Project Beta Neither project O Both projects
- Oll option information and correct answerRadley Co. is growing its business and is currently deciding how to finance this programme. Following some research, the business decides that it can either (1) issue bonds and use the money to buy the necessary assets, or (2) lease the assets for an extended period of time. Please respond to the following questions without understanding the relative costs involved: a. What benefits might leasing the assets have over purchasing them? b. What drawbacks can leasing the assets have in comparison to buying them? c. How would leasing the assets vary from issuing bonds and buying the assets in terms of how it will impact the Statement of Financial Position?An investment has an installed cost of $537,800. The cash flows over the four-year life of the investment are projected to be $212,750, $229,350, $196,010, and $144,720, respectively. a. If the discount rate is zero, what is the NPV? (Do not round intermediate calculations.) b. If the discount rate is infinite, what is the NPV? (A negative answer should be indicated by a minus sign.) c. At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV b. NPV c. IRR %
- Consider a firm with a contract to sell an asset for $154,000 five years from now. The asset costs $90,000 to produce today. a. Given a relevant discount rate of 13 percent per year, calculate the profit the firm will make on this asset. (A loss should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. At what rate does the firm just break even? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Firm's profit (loss) b. Break-even rate %could someone please help me outUse PRESENT WORTH. Show complete solution and cash flow diagram.