Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Textbook Question
Chapter 4, Problem 14P
You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now.
- a. What is the
NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity? - b. What is the NPV of the opportunity if the interest rate is 2% per year? Should you take it now?
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Suppose you invest $2,000 today and receive $11,000 in five years.
a. What is the internal rate of return (IRR) of this opportunity?
b. Suppose another investment opportunity also requires $2,000 upfront, but pays an equal amount at the end of each year for the next five years. If this investment has
the same IRR as the first one, what is the amount you will receive each year?
You have been offered a unique investment opportunity. If you invest $9,500 today, you will receive $475 one year from now, $1,425 two years from now, and $9,500 ten
years from now.
a. What is the NPV of the opportunity if the cost of capital is 5.2% per year? Should you take the opportunity?
b. What is the NPV of the opportunity if the cost of capital is 1.2% per year? Should you take it now?
C
a. What is the NPV of the opportunity if the cost of capital is 5.2% per year?
If the cost of capital is 5.2% per year, the NPV is $. (Round to the nearest cent.)
Should you take the opportunity? (Select from the drop-down menu.)
You
take this opportunity.
b. What is the NPV of the opportunity if the cost of capital is 1.2% per year?
If the cost of capital is 1.2% per year, the NPV is $
Should you take it now? (Select from the drop-down menu.)
You
take this opportunity at the new cost of capital.
(Round to the nearest cent.)
Suppose you invest $3,000 today and receive $10,000 in 25 years.
a. What is the internal rate of return (IRR) of this opportunity?
b. Suppose another investment opportunity also requires $3,000 upfront, but pays an equal amount at the end of each year for the next 25 years. If this investment has the same IRR as the first one, what is the
amount you will receive each year?
a. What is the internal rate of return (IRR) of this opportunity?
The IRR of this opportunity is%. (Round to two decimal places.)
b. Suppose another investment opportunity also requires $3,000 upfront, but pays an equal amount at the end of each year for the next 25 years. If this investment has the same IRR as the first one, what is the
amount you will receive each year?
The periodic payment that gives the same IRR is $
(Round to the nearest cent.)
Chapter 4 Solutions
Corporate Finance
Ch. 4.1 - Prob. 1CCCh. 4.1 - Prob. 2CCCh. 4.2 - Prob. 1CCCh. 4.2 - Prob. 2CCCh. 4.2 - Prob. 3CCCh. 4.3 - Prob. 1CCCh. 4.3 - Prob. 2CCCh. 4.4 - Prob. 1CCCh. 4.4 - What benefit does a firm receive when it accepts a...Ch. 4.5 - How do you calculate the present value of a a....
Ch. 4.5 - How are the formulas for the present value of a...Ch. 4.6 - Prob. 1CCCh. 4.6 - Prob. 2CCCh. 4.7 - Prob. 1CCCh. 4.7 - Prob. 2CCCh. 4.8 - Prob. 1CCCh. 4.8 - Prob. 2CCCh. 4.9 - Prob. 1CCCh. 4.9 - Prob. 2CCCh. 4.A - Your grandmother bought an annuity from Rock Solid...Ch. 4.A - Prob. A.2PCh. 4 - You have just taken out a five-year loan from a...Ch. 4 - Prob. 2PCh. 4 - Calculate the future value of 2000 in a. Five...Ch. 4 - Prob. 4PCh. 4 - Your brother has offered to give you either 5000...Ch. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Your daughters currently eight years old. You...Ch. 4 - Prob. 9PCh. 4 - Prob. 10PCh. 4 - Suppose you receive 100 at the end of each year...Ch. 4 - You have just received a windfall from an...Ch. 4 - Prob. 13PCh. 4 - You have been offered a unique investment...Ch. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - How would your answer to Problem 16 change if the...Ch. 4 - The British government has a consol bond...Ch. 4 - What is the present value of 1000 paid at the end...Ch. 4 - You are head of the Schwartz Family Endowment for...Ch. 4 - When you purchased your house, you took out a...Ch. 4 - Prob. 22PCh. 4 - Your grandmother has been putting 1000 into a...Ch. 4 - A rich relative has bequeathed you a growing...Ch. 4 - Prob. 25PCh. 4 - You work for a pharmaceutical company that has...Ch. 4 - Your oldest daughter is about to start...Ch. 4 - A rich aunt has promised you 5000 one year from...Ch. 4 - You are running a hot Internet company. Analysts...Ch. 4 - Prob. 31PCh. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - Prob. 34PCh. 4 - Prob. 35PCh. 4 - Prob. 36PCh. 4 - Prob. 37PCh. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - Prob. 40PCh. 4 - Prob. 41PCh. 4 - Prob. 42PCh. 4 - Prob. 43PCh. 4 - Prob. 44PCh. 4 - Prob. 45PCh. 4 - Prob. 46PCh. 4 - Prob. 47PCh. 4 - Prob. 48PCh. 4 - Prob. 49PCh. 4 - Prob. 50PCh. 4 - Prob. 51P
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