A text book publisher is thinking of asking some teachers to write a new textbook at a cost of $100,000, payable now. The book would be written, printed and ready to sell to students in 2 years. It will be ready just before semester begins.
A cash flow of $100 would be made from each book sold, after all costs such as printing and delivery. There are 600 students per semester. Assume that every student buys a new text book. Remember that there are 2 semesters per year and students buy text books at the beginning of the semester.
Assume that text book publishers will sell the books at the same price forever and that the number of students is constant.
If the discount rate is 8% pa, given as an effective annual rate, what is the NPV of the project?
Question 218 NPV, IRR, profitability index, average accounting return
Which of the following statements is NOT correct?
A firm is considering a business project which costs $11m now and is expected to pay a constant $1m at the end of every year forever.
Assume that the initial $11m cost is funded using the firm's existing cash so no new equity or debt will be raised. The cost of capital is 10% pa.
Which of the following statements about net present value (NPV), internal rate of return (IRR) and payback period is NOT correct?
Question 539 debt terminology, fully amortising loan, bond pricing
A 'fully amortising' loan can also be called a:
An Indonesian lady wishes to convert 1 million Indonesian rupiah (IDR) to Australian dollars (AUD). Exchange rates are 13,125 IDR per USD and 0.79 USD per AUD. How many AUD is the IDR 1 million worth?
Question 578 inflation, real and nominal returns and cash flows
Which of the following statements about inflation is NOT correct?
An investor bought a 5 year government bond with a 2% pa coupon rate at par. Coupons are paid semi-annually. The face value is $100.
Calculate the bond's new price 8 months later after yields have increased to 3% pa. Note that both yields are given as APR's compounding semi-annually. Assume that the yield curve was flat before the change in yields, and remained flat afterwards as well.
A one year European-style call option has a strike price of $4. The option's underlying stock pays no dividends and currently trades at $5. The risk-free interest rate is 10% pa continuously compounded. Use a single step binomial tree to calculate the option price, assuming that the price could rise to $8 ##(u = 1.6)## or fall to $3.125 ##(d = 1/1.6)## in one year. The call option price now is:
Question 965 foreign exchange reserve, foreign exchange rate, no explanation
Observe the below graph of Chinese foreign exchange reserves held by the central bank, as well as the Chinese currency the Yuan (CNY, also called the Renminbi, RMB) against the US Dollar. Note the inverted y-axis scale on the Yuan exchange rate graph.
Which of the below statements is NOT correct?
Question 975 comparative advantage in trade, production possibilities curve, no explanation
Arthur and Bindi are the only people on a remote island.
Luckily there are Coconut and Date palm trees on the island that grow delicious fruit. The problem is that harvesting the fruit takes a lot of work.
Arthur can pick 1 coconut per hour, 4 dates per hour or any linear combination of coconuts and dates. For example, he could pick 0.5 coconuts and 2 dates per hour.
Bindi can pick 2 coconuts per hour, 1 date per hour or any linear combination. For example, she could pick 0.5 coconuts and 0.75 dates per hour.
This information is summarised in the table and graph:
Harvest Rates Per Hour | ||
Coconuts | Dates | |
Arthur | 1 | 4 |
Bindi | 2 | 1 |
Which of the following statements is NOT correct?