If a project's net present value (NPV) is zero, then its internal rate of return (IRR) will be:

Which of the following statements about short-selling is **NOT** true?

Find the cash flow from assets (CFFA) of the following project.

Project Data | ||

Project life | 2 years | |

Initial investment in equipment | $6m | |

Depreciation of equipment per year for tax purposes | $1m | |

Unit sales per year | 4m | |

Sale price per unit | $8 | |

Variable cost per unit | $3 | |

Fixed costs per year, paid at the end of each year | $1.5m | |

Tax rate | 30% | |

Note 1: The equipment will have a book value of $4m at the end of the project for tax purposes. However, the equipment is expected to fetch $0.9 million when it is sold at t=2.

Note 2: Due to the project, the firm will have to purchase $0.8m of inventory initially, which it will sell at t=1. The firm will buy another $0.8m at t=1 and sell it all again at t=2 with zero inventory left. The project will have no effect on the firm's current liabilities.

Find the project's CFFA at time zero, one and two. Answers are given in millions of dollars ($m).

A trader **sells** a one year futures contract on crude oil. The contract is for the delivery of 1,000 barrels. The current futures price is $38.94 per barrel. The initial margin is $3,410 per contract, and the maintenance margin is $3,100 per contract.

What is the smallest price change that would lead to a margin call for the seller?

Mr Blue, Miss Red and Mrs Green are people with different utility functions. Which of the statements about the 3 utility functions is **NOT** correct?

When does a European option's last-traded market price become a sunk cost?

**Question 856** credit terms, no explanation

Your supplier’s credit terms are "**1/10 net 30**". Which of the following statements about these credit terms is **NOT** correct?

If you intend to buy an item from your supplier for a tag price of $100 and you:

**Question 896** comparative advantage in trade, production possibilities curve, no explanation

Adam and Bella are the only people on a remote island. Their production possibility curves are shown in the graph.

Which of the following statements is **NOT** correct?

**Question 935** real estate, NPV, perpetuity with growth, multi stage growth model, DDM

You're thinking of buying an investment property that costs $1,000,000. The property's rent revenue over the next year is expected to be $50,000 pa and rent expenses are $20,000 pa, so net rent cash flow is $30,000. Assume that net rent is paid annually in arrears, so this next expected net rent cash flow of $**30,000** is paid one year from now.

The year after, net rent is expected to fall by 2% pa. So net rent at year 2 is expected to be $**29,400** (=30,000*(1-0.02)^1).

The year after that, net rent is expected to rise by 1% pa. So net rent at year 3 is expected to be $**29,694** (=30,000*(1-0.02)^1*(1+0.01)^1).

From year 3 onwards, net rent is expected to rise at **2.5**% pa **forever**. So net rent at year 4 is expected to be $**30,436.35** (=30,000*(1-0.02)^1*(1+0.01)^1*(1+0.025)^1).

Assume that the total required return on your investment property is **6**% pa. Ignore taxes. All returns are given as effective annual rates.

What is the net present value (NPV) of buying the investment property?