The Woods Co. and the Mickelson Co. have both announced IPOs at $60 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing which is which. You plan to buy 600 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. If you could get 600 shares in Woods and 600 shares in Mickelson, what would your profit be? (Do not round intermediate calculations.) Profit $ What profit do you actually expect? (Do not round intermediate calculations.) Expected profit $
2. Your firm is considering an investment opportunity. Your firm has paid $50,000 for engineering, site surveys, and environmental impact studies. There were no environmental issues so the EPA approved the project. The hard construction costs will be $950,000 to build the project, and the present value of benefits will be $1,050,000. What is the NPV of the project?
Your company plans to spend $1,750,000 cash to build a plant that will produce benefits with a total present value of $3,000,000. Your company already owns the land on which it will build the plant. That land was purchased with cash several years ago for $300,000, which is the current book value of the land. The land could be sold for $1,275,000 after-tax today. What is the net present value of the proposed plant?
Opportunity costs are normally:
Incremental cash flows
The result of a company investing a non-cash asset in a capital budgeting project
Based on the market value (after tax) of a non-cash asset
All of the above