Entries by Hannah Wangui

There is a common phrase in business: “Cash is king.” “Cash flow is the life-blood of a company

September 11, 2019 in /by

Question  There is a common phrase in business: “Cash is king.” “Cash flow is the life-blood of a company. Without it, a company will fail” (Hicks, 2012). Yet, companies often have to take risks that could potentially jeopardize their cash flow (e.g., new projects, growth, capital budgeting, etc.). Assume you are the CFO of a […]

 

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Olympic Sports has two issues of debt outstanding

September 11, 2019 in /by

Question Olympic Sports has two issues of debt outstanding. One is a 7% coupon bond with a face value of $22 million, a maturity of 15 years, and a yield to maturity of 8%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and […]

 

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If you insulate your office for $16,000

September 11, 2019 in /by

Question If you insulate your office for $16,000, you will save $1,600 a year in heating expenses. These savings will last forever. a. What is the NPV of the investment when the cost of capital is 5%? 10%? b. What is the IRR of the investment? (Enter your answer as a whole percent.) c. What is the payback period […]

 

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A new computer system

September 11, 2019 in /by

Question A new computer system will require an initial outlay of $15,000, but it will increase the firm’s cash flows by $3,000 a year for each of the next 6 years. a. Calculate the NPV and decide if the system is worth installing if the required rate of return is 8%. (Negative amount should be indicated by a […]

 

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