Following Two Mutually Exclusive Homework Help

ALL WORK MUST BE ORIGINAL. NO PLAGIARISM OR PARAPHRASED WORK WILL BE ACCEPTED. USE IN TEXT AND CITATIONS FOR QUESTIONS 2-1 THRU 4-2

2-1

Corporate Bonds (125 Words Minimum)

How does a bond issuer decide on the appropriate coupon rate to set on its bonds? Are short-term bond prices more sensitive to interest rate changes than long-term bond prices?

3-1

Option Pricing in Corporate Finance (125 words Minimum)

Using an internet search engine and an online investments site of your choice, choose an option strategy that interests you. In your own words relate the key points of the strategy to your classmates.

4-1

SML (125 WORDS Minimum)

What are some of the advantages and disadvantages of using the SML approach to finding the cost of equity capital? What are the specific pieces of information needed to use this method? Are all of these variables observable, or do they need to be estimated? What are some of the ways in which you could get these estimates?

4-2

Discount Rate (125 Words Minimum)

Consider a levered firm’s projects that have similar risks to the firm as a whole. Is the discount rate for the projects higher or lower than the rate computed using the security market line? Why?

SHOW WORK FOR QUESTIONS 11, 12 AND 14

11.

NPV versus IRR Consider the following cash flows on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 14 percent. As a financial analyst for BRC, you are asked the following questions:

a. If your decision rule is to accept the project with the greater IRR, which project should you choose?

b. Because you are fully aware of the IRR rule’s scale problem, you calculate the incremental IRR for the cash flows. Based on your computation, which project should you choose?

c. To be prudent, you compute the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule?

12.

Problems with Profitability Index the Cori’s Sausage Corporation is trying to choose between the following two mutually exclusive design projects:

a. If the required return is 10 percent and the company applies the profitability index decision rule, which project should the firm accept?

b. If the company applies the NPV decision rule, which project should it take?

c. Explain why your answers in (a) and (b) are different.

14.

Comparing Investment Criteria Wii Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game either as a traditional board game or as an interactive DVD, but not both. Consider the following cash flows of the two mutually exclusive projects for the company. Assume the discount rate for both projects is 10 percent.