Assignment
1. 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 cost of capital is 6% per year? Should you take the opportunity? b) What is the NPV of the opportunity if the cost of capital is 2% per year? Should you take it now
2. You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $5000 and will be posted for one year. You expect that it will generate additional free cash flow of $500 per month. What is the payback period?
3. You are choosing between two projects, but can only take one. The cash flows for the projects are given in the following table:
|
|
0
|
1
|
2
|
3
|
4
|
|
A
|
-$50
|
25
|
20
|
20
|
15
|
|
B
|
-$100
|
20
|
40
|
50
|
60
|
a) What are the IRRs of the two projects? If your discount rate is 5%, what are the NPVs of the two projects? b) Why do IRR and NPV rank the two projects differently?
4) You buy 100 shares of Tidepool Co. for $40 each and 200 shares of Madfish, Inc., for $15 each. What are the weights in your portfolio?
5) You are analyzing a stock that has a beta of 1.2. The risk-free rate is 5% and you estimate the market risk premium to be 6%. If you expect the stock to have a return of 11% over the next year, should you buy it? Why or why not?
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.