In Keynesian theory of investment, suppose an asset costs $1000 and it is expected to yield $600 at the end of year 1 and $600 at the end of the second year (and zero thereafter), calculate the internal rate of return for this particular project.
In Keynesian theory of investment, suppose an asset costs $1000 and it is expected to yield...
In Keynesian theory of investment, suppose an asset costs $1000 and it is expected to yield $600 at the end of year 1 and $600 at the end of the second year (and zero thereafter), then r* (rate of return associated with marginal project) will be a) 10% b) 11% c) 12% d) 13%
6-8 5-9 Expected on page 206.) EXPECTATIONS THEORY One-year Treasury securities yield 4.85%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 5.2%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield using a geometric average. EXPECTATIONS THEORY Interest rates on 4-year Treasury securities are currently 6.7%, while 6-year Treasury securities yield 7.25%. If the pure expectations theory is correct, what does the market believe that...
What is the internal rate of return on a $37,000 investment that is expected to yield $9,000 in cash flows over a six-year period?
Suppose the annual yield on a two-year Treasury bond is 3.2 percent, the yield on a one-year bond is 2.4 percent, the real risk-free rate of interest or r* is 2 percent, and the maturity risk premium is zero (0). a. Using the expectation theory, forecast the interest rate on a one-year bond during the second year. b. What is the expected inflation rate in Year 1? c. What is the expected inflation rate in Year 2?
A project requires an initial fixed asset investment of $600,000, which will be depreciated straight-line to zero over the six-year life of the project. The pre-tax salvage value of the fixed assets at the end of the project is estimated to be $50,001. Projected sales volume for each year of the project is shown below. The sale price is $50 per unit for the first three years, and $45 per unit for years 4 through 1. A $30,000 initial investment...
7A) Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,190,000 in annual sales, with costs of $815,000. If the tax rate is 35 percent, what is the OCF for this project? Suppose the required return on the project is 12 percent. What...
Suppose the yield on short-term government securities (perceived to be risk-free) is about 5%. Suppose also that the expected return required by the market for a portfolio with a beta of 1 is 11.0%. According to the capital asset pricing model: a. What is the expected return on the market portfolio? b. What would be the expected return on a zero-beta stock? Suppose you consider buying a share of stock at a price of $80. The stock is expected to...
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.43 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $281,289 at the end of the project. The project is estimated to generate $2,102,812 in annual sales, with costs of $805,313. The project requires an initial investment in net working capital of $361,924. If the tax rate is...
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.41 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life and is estimated to have a market value of $213,186 at the end of the project. The project is estimated to generate $2,105,355 in annual sales, with costs of $883,025. The project requires an initial investment in net working capital of $377,259. If the tax rate is...
Q3. (25 marks) A project requires an initial fixed asset investment of $600,000, which will be depreciated straight-line to zero over the six-year life of the project. The pre-tax salvage value of the fixed assets at the end of the project is estimated to be $50,001. Projected sales volume for each year of the project is shown below. The sale price is $50 per unit for the first three years, and $45 per unit for years 4 through 1. A...