Investments
Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 21, Problem 50PS
Summary Introduction

To determine implicit assumption about the volatility of the stock's rate of return over the next year using the given information.

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Pat and Chris have identical interest-bearing bank accounts that pay them $15 interest per year. Pat leaves the $15 in the account each year, while Chris takes the $15 home to a jar and never spends any of it. After five years, who has more money? Pat. Chris. They both have the same amount. Don’t know
Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 25 percent tax bracket. a. Compute its cash flow using the following format: Earnings before depreciation and taxes _____Depreciation _____Earnings before taxes _____Taxes @ 25% _____Earnings after taxes _____Depreciation _____Cash Flow _____ b. Compute the cash flow for the company if depreciation is $200,000. Earnings before depreciation and taxes _____Depreciation _____Earnings before taxes _____Taxes @ 25% _____Earnings after taxes _____Depreciation _____Cash Flow _____ c. How large a cash flow benefit did the depreciation provide?
Assume a $40,000 investment and the following cash flows for two alternatives. Year                       Investment X                      Investment Y  1                               $6,000                               $15,000  2                                 8,000                                 20,000  3                                 9,000                                 10,000  4                               17,000                                     —  5                               20,000                                     — Which of the alternatives would you select under the payback method?
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