EBK CORPORATE FINANCE
4th Edition
ISBN: 8220103164535
Author: DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 3, Problem 11P
Your computer manufacturing firm must purchase 10,000 keyboards from a supplier. One supplier demands a payment of$100,000 today plus $10 per keyboard payable in one year. Another supplier will charge $21 per keyboard, also payable in one year. The risk-free interest rate is 6%.
- a. What is the difference in their offers in terms of dollars today? Which offer should your firm take?
- b. Suppose your firm does not want to spend cash today. How can it take the first offer and not spend $100,000 of its own cash today?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
You run a construction firm. You have just won a contract to build a government office complex. Building it will require an investment of $10.4 million today and $4.8
million in one year. The government will pay you $21.8 million in one year upon the building's completion. Suppose the interest rate is 10.2%
a. What is the NPV of this opportunity?
b. How can your firm turn this NPV into cash today?
a. What is the NPV of this opportunity?
The NPV of the proposal is $ million. (Round to two decimal places.)
Please provide complete solution.
You run a construction firm. You have just won a contract to build a government office complex. Building it will require
an investment of $9.5 million today and $5.5 million in one year. The government will pay you $21.7 million in one year
upon the building's completion. Suppose the interest rate is 10.3%.
a. What is the NPV of this opportunity?
b. How can your firm turn this NPV into cash today?
www.
a. What is the NPV of this opportunity?
The NPV of the proposal is $
million. (Round to two decimal places.)
b. How can your firm turn this NPV into cash today? (Select the best choice below.)
O A. The firm can borrow $19.67 million today and pay it back with 10.3% interest using the $21.7 million it will
receive from the government.
B. The firm can borrow $15.0 million today and pay it back with 10.3% interest using the $21.7 million it will
receive from the government.
O C. The firm can borrow $15.0 million today and pay it back with 10.3% interest using the $19.67 million it will…
Chapter 3 Solutions
EBK CORPORATE FINANCE
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Suppose you are contemplating buying a collector's edition of a John Maynard Keynes Action Figure. You would have to make a down payment today of $1,000 and then pay $1,875 at the end of two years from now (ie year 2). If you buy it today, a year from today ( ie year 1), you would sell the Action Figure for $2,750. Your minimum acceptable rate of return (MARR) is 20%. Find the positive breakeven interest rates on your potential investment. b. Determine whether this is a pure investment. (Use only one breakeven interest rate in your calculation – doesn't matter which one). C. Suppose you use the modified internal rate of return MIRR to evaluate investments. Calculate MIRR and determine if you should buy the Action Figure. (Note: use MARR when evaluating both cash inflows and cash outflows). d. Find the True IRR (You may assume that i is such that PB1 >0) and determine if you should buy the Action Figure.arrow_forwardYou are considering an investment in a clothes distributer. The company needs $105,000 today and expects to repay you $120,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 17%. What does the IRR rule say about whether you should invest? What is the IRR of this investment oppurtunity? The IRR of this investment opppurtunity is ____%arrow_forwardAnswer the attached questionarrow_forward
- Answer the attached questionarrow_forwardYou are considering an investment in a clothes distributer. The company needs $106,000 today and expects to repay you $124,000 in a year from now. What is the IRR of this investment opportunity? Given the riskiness of the investment opportunity, your cost of capital is 15%. What does the IRR rule say about whether you should invest? What is the IRR of this investment opportunity? The IRR of this investment opportunity is %. (Round to two decimal places.)arrow_forwardThe Sandbox's Company has cash needs of P5 million per month. If Sandbox needs more cash, it can sell marketable securities, incurring a fee of P300 for each transaction. If Sandbox leaves its funds in marketable securities, it expects to earn approximately 0.50% per month on their investment. 1. Using the Baumol model, how much would be the Sandbox’s minimum total costs associated with cash infusion? 2. If Sandbox gets a cash infusion of P1 million each time it needs cash, what are the holding costs associated with its cash investment? 3. Using the Baumol model, what level of cash infusion minimizes Sandbox’s costs associated with cash?arrow_forward
- You have just purchased new goods worth 10,000 EUR from your supplier. Your supplier offers you to pay within 35 days. If you pay within the first 5 days, you get a discount of 1%. You know that he might accept a further delay, because he has a quite bad receivables management, but if he notices, which you estimate has a probability of roughly 50%, you might get an additional fee of 1000 EUR. You need your next delivery in 60 days and you know he will not deliver the new goods unless you pay the outstanding invoice. When would you pay? Why? What is the effective interest rate?arrow_forwardWrite your answer on clean paper, show your solution clearly and readable, and then Box your final answer. Take note: Give what is asked and show your answer.arrow_forwardIt costs a risk neutral firm £800 to set up a factory (fixed cost). The factory can produce one unit of output per year forever. The current price of a unit of output is £100. The product price is currently uncertain. In the next period the price will increase or decrease by 50% (with equal probability) and remain fixed forever at the level it has reached. The interest rate is 10%. a) According to NPV, should the firm invest now? This means spending £800 in the current period and selling the first unit of output for £100 today and either £150 forever afterwards or £50 forever afterwards (with equal probability). b) What is the real option value of waiting to see whether the price goes up or down? This means investing £800 next period and getting the appropriate price forever. c) If the price for deferred investment is higher (the firm has to invest £I > £800 at the beginning of next period) how high can it be before the firm will choose to invest now? d) How would your…arrow_forward
- Suppose you live in the Fama-French three-factor model world. Goldman Sachs is selling two derivative securities to your company. Both will pay 100 million dollars over a 10 year period. Assume time value of money is zero. Security A will pay out cash that is positively correlated with economic indicators, thus paying out more when economy is booming and less when economy is tanking. Security B will pay out cash that is negatively correlated with economic indicators, thus paying out more when economy is tanking and less when economy is booming. What should be the fair valuation of these two securities at the start of this 10 year period. A<100 million; B>100 million A=B Both are smaller than 100 million and A<B Both securities should be priced lower than 100 millions. But A>Barrow_forwardThe price of a car you want is $42,000 today. Its price is expected to increase by $1000 each year. You now have $25,000 in an investment account, which is earning 10% per year. How many years will it be before you have enough to buy the car without borrowing any money? Solve by (a) trial and error, and (b) by spreadsheet.arrow_forwardYour firm needs to purchase 8,000 safety vests from a supplier. One supplier demands a payment of $32,000 today plus $5.00 per vest payable in one year. Another supplier will charge $9.50 per vest, also payable in one year. If the discount rate is 7.10% per year, compounded annually, how much does your firm save by taking the less expensive offer compared to the more expensive offerarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
INVENTORY & COST OF GOODS SOLD; Author: Accounting Stuff;https://www.youtube.com/watch?v=OB6RDzqvNbk;License: Standard Youtube License