What is NPV for project A
Question 1:
(a)What is NPV for project A?
(b) what is the IRR for project B?
(c) which project will you choose A or B?
Discount rate | 11% | |
Year | Project A | Project B |
0 | -1000 | -800 |
1 | 500 | 420 |
2 | 500 | 420 |
3 | 500 | 420 |
4 | 500 | 420 |
5 | 500 | 420 |
6 | 200 | 300 |
7 | 350 | 300 |
8 | 360 | 300 |
9 | 200 | 450 |
10 | 200 | 260 |
11 | 200 | 260 |
NPV | ||
IRR |
Question 2:
(a)-(d) based on the following.
Suppose you write a IBM call which was sold for $7.00 on Apr 9 2013 with exercise price X=$110, on Expiration date July 19,2013, given different possibilities of market prices, please answer. Hint: Profit/ loss is not payoff.
ST: Market price | Will call | Dollar |
0 | ||
80 | ||
90 | ||
100 | ||
110 | ||
120 | ||
130 | ||
140 | ||
150 | ||
160 | ||
170 | ||
180 | ||
190 |
(a) Will call buyer exercise the call when market price on July 19 is $90? Please answer YES or NO.
(b)Will call buyer exercise the call when market price on July 19 is $130? Please answer YES or NO.
(c) How much is profit/loss for call writer( who writes a call) if the market price on July 19 is $100?
(d) How much is the profit/loss for a call writer when market price on July 19 is $140?
Question 3:
ABC company’s current FCF is $2,000,000, it will grown at 25% for the first 4 years and back to a steady growth rate 7% after 4 years. The WACC is 10%, outstanding shares is 4,000,000. Please use FCF model to estimate the value of their stock. Assume all FCFs happen at the end period.
Current FCF | 2,000,000 |
Anticipated growth rate, years 1-4 | 25% |
WACC | 10% |
Long-term growth rate, after year 4 | 7% |
Number of shares outstanding | 4,000,000 |
(a) what is FCF at the end of year 2?
(b) what is FCF at year 5?
(c) What is the terminal value at the end of year 4?
(d) What is the forecast stock price per share?
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Solution: What is NPV for project A (Solution)