18) For this and the next question: Consider the following mutually exclusive pr
ID: 2721633 • Letter: 1
Question
18) For this and the next question: Consider the following mutually exclusive projects, P and Q with r = 10%: Which of the two projects should be accepted?
Year
P
Q
0
-$1,100
-$1,100
1
800
200
2
500
400
3
100
1,000
A) Both projects
C) Project Q, because its NPV is $163.71
D) None of the projects should be selected
22) For this and the next question (Assume earnings growth): Aon Electronics has EBIT of $200,000, a growth rate of 6%, and faces a tax rate of 40%. In order to support growth, Aon must reinvest 20% of its EBIT in net operating assets. The firm has $300,000 in 8% debt outstanding. A similar company with no debt has a cost of equity of 11% (i.e. rEU = 11%). According to the MM extension with growth, what is the value of Aon's interest tax savings?
A) $87,273
C) $288,000
D) $192,000
E) $300,000
27) INTERNATIONAL FINANCE. Suppose you wish to invest $50,000 today in German securities earning 5% per year. What is your investment value 3 years from today - in U.S. dollars - if, if at that time the direct quote for the euro is $1.35? Assume the current spot exchange rate is $1.30.
B) $44,524.04
C) $52,500.00
D) $60,107.45
E) None of the above
Year
P
Q
0
-$1,100
-$1,100
1
800
200
2
500
400
3
100
1,000
Explanation / Answer
18./
PROJECT P
0.9091
PROJECT Q
0.9091
PROJECT Q IS ACCEPTED BECAUSE ITS NPV IS $163.68.
THERE IS A LITTLE DIFFRENCE BECAUSE OF ROUNDING OF.
27./
CURRENT VALUE OF $50000 IN EURO
= $50000 / $1.30
= $38461.54
FUTURE VALUE OF EURO38461.54
= EURO 38461.54 * FVIF 5%,3PERIODS
= EURO 38461.54 * 1.1576
= EURO 44523.08
DOLLAR VALUE AT THAT TIME
= EURO 44523.08 * $1.35
= $60106.15
ANSWER IS LITTLE DIFFRENCE FROM YOUR OPTION BECAUSE OF ROUNDING OF.
ANSWER OPTION IS D
YEAR CASH FLOW DISCOUNTING FACTOR DISCOUNTED CASH FLOW 0 -$1100 1.000 -$1100 1 $8000.9091
$727.28 2 $500 0.8264 $413.2 3 $100 0.7513 $75.13 NPV $115.61Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.