# Question: Xia Corporation is a company whose sole assets are 100 000

Xia Corporation is a company whose sole assets are $100,000 in cash and three projects that it will undertake. The projects are risk-free and have the following cash flows:

Xia plans to invest any unused cash today at the risk-free interest rate of 10%. In one year, all cash will be paid to investors and the company will be shut down.

a. What is the NPV of each project? Which projects should Xia undertake and how much cash should it retain?

b. What is the total value of Xia’s assets (projects and cash) today?

c. What cash flows will the investors in Xia receive? Based on these cash flows, what is the value of Xia today?

d. Suppose Xia pays any unused cash to investors today, rather than investing it. What are the cash flows to the investors in this case? What is the value of Xia now?

e. Explain the relationship in your answers to parts (b), (c), and(d).

Xia plans to invest any unused cash today at the risk-free interest rate of 10%. In one year, all cash will be paid to investors and the company will be shut down.

a. What is the NPV of each project? Which projects should Xia undertake and how much cash should it retain?

b. What is the total value of Xia’s assets (projects and cash) today?

c. What cash flows will the investors in Xia receive? Based on these cash flows, what is the value of Xia today?

d. Suppose Xia pays any unused cash to investors today, rather than investing it. What are the cash flows to the investors in this case? What is the value of Xia now?

e. Explain the relationship in your answers to parts (b), (c), and(d).

## Answer to relevant Questions

The table here shows the no-arbitrage prices of securities A and B that we calculated.a. What are the payoffs of a portfolio of one share of security A and one share of security B?b. What is the market price of this ...Consider a portfolio of two securities: one share of Johnson and Johnson (JNJ) stock and a bond that pays $100 in one year. Suppose this portfolio is currently trading with a bid price of $141.65 and an ask price of $142.25, ...When you purchased your house, you took out a 30-year annual-payment mortgage with an interest rate of 6% per year. The annual payment on the mortgage is $12,000. You have just made a payment and have now decided to pay the ...Suppose you take the 30-year mortgage described in Problem 38, part (a). How much will you still owe on the mortgage after 15 years?You are considering purchasing a warehouse. The cost to purchase the warehouse is $500,000. Renting the equivalent space costs $20,000 per year. If the annual interest rate is 6%, at what rate must rental cost increase each ...Post your question