Q1. Explain the two common benefits of NPV over the IRR rule if comparing mutually exclusive projects.
Q2. Assume that the Bondi Inc. is a holding company which owns both Pizza Hut and Kentucky Fried Chicken Franchised Restaurants. If Bondi’s value is $130 million and the Pizza Hut Franchises are of worth $70 million, then determine the value of the Kentucky Fried Chicken Franchises?
Q3. An independent film maker is considering producing a new movie. The preliminary cost for making this movie will be $20 million now. Once the movie is finished, in one year, the movie will be sold to a major studio for $25 million. Assume that the fair interest rate is 10% compute the NPV.
Q4. Suppose that instead of paying for $20 million investment totally using its own cash, the film maker is considering increasing additional funds by issuing a security which will pay investors $11 million in one year. Again the fair interest rate is 10%. Find out the NPV?
Q5. Assume that the ETF is trading for $365; what transactions must you make to earn an arbitrage profit? Compute the arbitrage profit available.