## CASE Berkshire Instruments Al Hansen, the newly appointed vice president of finance

Question: Answer:

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# Finance

## Steaks Galore needs to arrange to finance for its expansion program

## Discuss the idea of capitalizing a stream of earnings in perpetuity

## Suppose that a person won the Florida lottery and was offered a choice of two prizes

## Callaway Associates, Inc. is considering the following mutually exclusive projects

## Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%…

Question: Steaks Galore needs to arrange to finance for its expansion program. One bank offers to lend the required $1,000,000 on a loan which requires interest to be paid at the end of each quarter. The quoted rate is 10 per cent, and the principal must be repaid at the end of the year. A …

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Question: Discuss the idea of capitalizing a stream of earnings in perpetuity. Where is this idea useful? Is there a financial asset that makes use of this idea? Answer: Capitalisation of the stream of earning in perpetuity will mean that the company is working upon the assumption that the company will be having the similar …

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Question: Suppose that a person won the Florida lottery and was offered a choice of two prizes: (1) $500,000 or (2) a coin-toss gamble in which he or she would get $1 million if a head were flipped and zero if a tail. a. What is the expected dollar return on the gamble? b. Would …

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Question: Callaway Associates, Inc. is considering the following mutually exclusive projects. Callaway’s cost of capital is 12%. Project A PROJECT B 0 ($25,000) ($80,000) 1 $44,000 $65,000 2 $34,000 $30,000 3 $14,000 $ 0 4 $14,000 $5,000 a. Calculate each project’s NPV and IRR. b. Which project should be undertaken ? Why? Answer: In the …

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Question: Please show work Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,235 and has 8 years to maturity. What is the bond’s yield to maturity? You are willing to pay $14,412 now to purchase a consol bond which will pay …

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