1. Inter-temporal Investment/Consumption a. Summarize Fisher's separation theorem. b. Why is this theorem important to both...

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1. Inter-temporal Investment/Consumption a. Summarize Fisher's separation theorem. b. Why is this theorem important to both investors and corporations? c. Why is the existence of a capital market important to the theorem? Illustrate this graphically in the two-period framework and show/explain how consumers will maximize utility. d. What are some of the assumptions that cause the theorem to hold? 2. Borrowing and Lending with Financial markets a. Illustrate the position of a borrower" in the capital markets in the context of the two-period investment-consumption model. Be sure to properly label the graphs b. Illustrate the position of a lender" in the capital markets in the context of the two-period investment-consumption model. Be sure to properly label the graphs c. Show how changes in the interest rate can affect the utilities of borrower/lenders. 3. Investment under Certainty Glassrock, Inc. is examining a new project. The cost of capital is 10% and the company faces a 40% tax rate. The project has a 4-year life that has the following free cash flows: Year 0 1 2 3 4 FCF -275,000 150,000 100,000 50,000 25,000 a. What is the NPV of the project? b. What is the project's IRR? c. What is the project's Payback period? d. What is the project's MIRR, assuming the cash flows are reinvested at the cost of capital. e. Should the project be accepted? Why? 1. Inter-temporal Investment/Consumption a. Summarize Fisher's separation theorem. b. Why is this theorem important to both investors and corporations? c. Why is the existence of a capital market important to the theorem? Illustrate this graphically in the two-period framework and show/explain how consumers will maximize utility. d. What are some of the assumptions that cause the theorem to hold? 2. Borrowing and Lending with Financial markets a. Illustrate the position of a borrower" in the capital markets in the context of the two-period investment-consumption model. Be sure to properly label the graphs b. Illustrate the position of a lender" in the capital markets in the context of the two-period investment-consumption model. Be sure to properly label the graphs c. Show how changes in the interest rate can affect the utilities of borrower/lenders. 3. Investment under Certainty Glassrock, Inc. is examining a new project. The cost of capital is 10% and the company faces a 40% tax rate. The project has a 4-year life that has the following free cash flows: Year 0 1 2 3 4 FCF -275,000 150,000 100,000 50,000 25,000 a. What is the NPV of the project? b. What is the project's IRR? c. What is the project's Payback period? d. What is the project's MIRR, assuming the cash flows are reinvested at the cost of capital. e. Should the project be accepted? Why?