Peter is considering opening a retail shop in the ground floor of his house which is currently rented out and earning $24,000 per year with no likely increase for next 10 years. The initial investment for opening the shop is $85,000 and it is likely to provide cash profit of $25,000 per annum for next five years. After 5 years Peter plans to sell the shop for $90,000 and go for a world tour. The appropriate discount rate for this project is 14%. Peter should
a) Accept the project as NPV of the project is $47,570
b) Reject the project as NPV of the project is $-34,823
c) Reject the project as NPV of the project is $-30,547
I am an engineering grad, pursuing my MBA, in my first year, from a top-10 institute in India. I want to know how much value a CFA would add to an MBA in finance.
Please also let me know how I can approach preparation if I am going to appear in June 2014.
Great if someone could guide me in detail regarding my above queries.
Needed some help. I'm in my final year of engineering. I wanted to know whether CFA L1 would have any kind of impact for my admission to MBA institutes in India? Plus, how good would only Level1 be? Will it increase job opportunities just after my engng. too?
Peter is considering opening a retail shop in the ground floor of his house which is currently rented out and earning $24,000 per year with no likely increase for next 10 years. The initial investment for opening the shop is $85,000 and it is likely to provide cash profit of $25,000 per annum for next five years. After 5 years Peter plans to sell the shop for $90,000 and go for a world tour. The appropriate discount rate for this project is 14%. Peter should
a) Accept the project as NPV of the project is $47,570
b) Reject the project as NPV of the project is $-34,823
c) Reject the project as NPV of the project is $-30,547
Answer B: The $24,000 rent is an opportunity cost. So net cash flow that should be discounted for every year is 25,000(profit)- 24000(missed rent)= 1000. Discounting the cash flow would give a NPV of $ -34,823
Prompt delivery Ltd is considering leasing of new buildings for its new stores. The lease is for 5 years at the end of which the office would be closed. They have an option of opening an office in upmarket locality (UP) which would cost $ 200,000 and provide a cash flow of $50,000 in year 1 which would increase at the rate of 10% during the life. The other option is to open the store in nearby area(NA) which would cost $95,000 only but will provide a cash flow of $ 24,000 that would increase at the rate of 12% per annum. Given that capital is not a constraint Prompt Delivery Ltd should
a) Open 'NA' store alone if their cost of capital is
b) Open 'UP' store alone if their cost of capital is >15.3%
Prompt delivery Ltd is considering leasing of new buildings for its new stores. The lease is for 5 years at the end of which the office would be closed. They have an option of opening an office in upmarket locality (UP) which would cost $ 200,000 and provide a cash flow of $50,000 in year 1 which would increase at the rate of 10% during the life. The other option is to open the store in nearby area(NA) which would cost $95,000 only but will provide a cash flow of $ 24,000 that would increase at the rate of 12% per annum. Given that capital is not a constraint Prompt Delivery Ltd should
a) Open 'NA' store alone if their cost of capital is
b) Open 'UP' store alone if their cost of capital is >15.3%
Project should be chosen if IRR > Cost of capital;. Hence statement 'C' is correct. Statement 'A' is not correct because if Cost of capital is less than 16.6% then both stores should be opened (capital is not a constraint)
Camel Inc is planning to start a project which can be run for three years at the end of which the project would be terminated. The project will need an initial investment of $55,000 for leasing a building and will utilize a machine worth $85,000 which is currently lying idle with Camel. The project will provide the following cash flows Y1: $ 45,000 Y2: $65,000 and Y3: $ 75,000. The relevant discount rate is 11%. The discounted payback period for the project is closest to
James and William were discussing about project evaluation techniques and made the following statements
James: The NPV of the project would be Zero if the cost of capital is equal to the Internal Rate of Return (IRR). If there is conflict between IRR and NPV during project evaluation the NPV decision would overrule IRR decision
William: The biggest problem with IRR is sometimes there would be no IRR in which case one cannot decide anything about the project. IRR is the minimum return that one would get from a viable project.
a) James is partly correct but Williams is completely wrong
b) James is completely correct but Williams is partly wrong
c) James is completely correct but Williams is completely wrong
Blueprint Inc has equity capital of $200 mn, debt outstanding of $150 mn and preferred shares outstanding of $ 100 mn. The debt attracts an interest at the rate of 7% and preferred shares attract a dividend at the rate of 9%. The cost of equity is 14%. The company's effective tax rate is 40%. The Weighted average cost of capital (WACC) of blueprint is closest to
@Nirmal_Analyst Can you guide how to go about studying Financial Reporting and Analysis? I have heard it has a very high weight-age....also I have 2013 June material...can I study
Can you guide how to go about studying Financial Reporting and Analysis? I have heard it has a very high weight-age....also I have 2013 June material...can I study
Financial Reporting and Analysis from it?
The FRA has not changed from last year, so you can continue to use the same. I would suggest you to follow the order in the curriculum book and practice as many questions as possible
Hi..Please guide me about the study material for level 1. I am very interested in this field and also following/analyzing markets from past 4-5 years. But I am working in IT MNC from past 3+ years. Trying for MBA in finance, but no good luck for preferred college. Thought of doing CFA+MBA, but now MBA seems like a distant dream. ANybody please suggest will it be possible to get into banking/analyst job after level 2 from IT experience provided i have sound knowledge. or I must have ++MBA? any other suggestions,pls help.
Ram an analyst with Placard Ventute Capital Ltd is trying to estimate the cost of capital for one of the companies he is following. Since information about neither the current capital structure nor the target capital structure for the company is available he has decided to estimate the cost of capital using comparable company method. In this case the capital structure (weights for capital) he uses should ideally be
a) Asset weighted arithmetic average of the comparable companies
b) Market Cap weighted geometric average of the comparable companies
c) Un-weighted arithmetic average of the comparable companies
