You manage a corporation. You are expected to work in the best interest of your shareholders....

  

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You manage a corporation. You are expected to work in the best interest of your shareholders. You have three potential projects. The projects are mutually exclusive so you can only choose one. Use the following information about cash flows and performance measures: A B -16000 -16000 5000 8000 6000 7000 0 7000 6000 0 9000 5000 0 Discount rate 14% 16% 15% IRR 22,1% 25% 31,25% Which of the three projects should be chosen? Why? Year 0 1 2 3 4 с -16000 21000 Michael has the opportunity to buy a real estate for $150 000 which he expects to be able to sell at $200 000 next period. Let's assume for simplicity that he lives for only two periods: young and old. His income when young is $200 000 and $100 000 when old. Michael can borrow and lend at a 7% interest rate per period. a) What is the NPV of this investment opportunity? Plot Michael's budget constraint with and without investment b) If Michael buys the property what is the effect on his present consumption if he keeps all future consumption unchanged c) What financial transactions are necessary to achieve this d) What is the maximum price Michael is willing to pay for the real estate? e) Should Michael buy the land? You manage a corporation. You are expected to work in the best interest of your shareholders. You have three potential projects. The projects are mutually exclusive so you can only choose one. Use the following information about cash flows and performance measures: A B -16000 -16000 5000 8000 6000 7000 0 7000 6000 0 9000 5000 0 Discount rate 14% 16% 15% IRR 22,1% 25% 31,25% Which of the three projects should be chosen? Why? Year 0 1 2 3 4 с -16000 21000 Michael has the opportunity to buy a real estate for $150 000 which he expects to be able to sell at $200 000 next period. Let's assume for simplicity that he lives for only two periods: young and old. His income when young is $200 000 and $100 000 when old. Michael can borrow and lend at a 7% interest rate per period. a) What is the NPV of this investment opportunity? Plot Michael's budget constraint with and without investment b) If Michael buys the property what is the effect on his present consumption if he keeps all future consumption unchanged c) What financial transactions are necessary to achieve this d) What is the maximum price Michael is willing to pay for the real estate? e) Should Michael buy the land?

Answer rating: 100% (QA)

SOLUTION a The NPV of the investment opportunity can be calculated as follows NPV 20000010071 100000... View the full answer