Instructions: find out the problems, use Excel Formula where necessary, SHOW ALL WORKS and show how you arrived at the answers.
1. A project costing $1 million is expected to save $300,000/yr for 4 years. What is the simple payback, NPV, and IRR.
2. Would you prefer to invest in a project with a high IRR, or low IRR? Why?
3. A construction company is considering spending $100,000 in some new safety equipment. Where would it expect to see some savings, that it could put into the capital budgeting analysis.
4. A share of common stock is selling for $20; its most recent dividend was $1, and dividends have been growing at 5%. If I am willing to pay the $20, what does that imply my E[r] is?
5. A 6%, $1000, 30 year bond, that was issued 10 years ago, is selling for $980. If I 'm willing to pay that much, what does that mean my E[r] or YTM is?