1. Consider two investment opportunities. The first promises to make fixed quarterly payments of $1200 for 20 years, but the payments do not start until 4 years from now. The second promises to make fixed annual payments of $6000 forever, but the payments do not start until 8 years from now. If the required return for both is 8%, which one do you prefer? How much would you be willing to pay for each of these investments?
2. A company has net income of $2500 and profit margin of 15%. The company’s depreciation expense for the year was $300, interest expense was $200, and the average tax rate is 30%.
What was the company’s taxable income?
What was the company’s EBIT?
What was the company’s Operating Cash Flow?