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Four Finance Problems Set




Question;1. The initial investment of a project is $110,000. The following are the estimated cash flows:Year Cash Flow1 $30,0002 40,0003 20,0004 40,0005 50,000Using NPV method and a constant discount rate of 12%, determine if the project is acceptable.2. If a company issues a $1000 par value bond with a $90 coupon and a maturity date of 10 years and floatation cost are 2% of the par value of the bond, calculate the cost of this debt issue, assuming that the firm is subject to a 40% tax rate.3. Using the Black-Scholes model, calculate the fair value of a call option having the following features:Price of stock $75Exercise Price $70N(d1) 0.68N(d2) 0.75Risk-free rate 5%Time to expiration 12 months4. What do financial managers try to maximize, and what is their second objective? Be very specific and elaborate in your answer.


Paper#48890 | Written in 18-Jul-2015

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