(You will need a computer for this problem.) The following information is available about an investment opportunity. Investment will occur at time 0 and sales will commence at time
1. Initial cost$28 million
Unit sales 400,000
Selling price per unit, this year$60.00
Variable cost per unit, this year$42.00
Life expectancy 8 years
Nominal discount rate10.0%
Real discount rate10.0%
a. Prepare a spreadsheet to estimate the projects annual after-tax cashflows.
b.Calculate the investments internal rate of return and its NPV.
c.How do your answers to questions (a) and (b) change when you assume a uniform inflation rate of 8 percent a year over the next10years?
this is page 16
1.You have $100,000 to invest in ten stocks, $10,000 in each (no mutual funds). You may not alter your selections during the semester, and cash is not an option. (Sorry; the purpose of this assignment is not to teach trading. Ad- ditional material will be added as the semester progresses.) Select an Internet source and set up a watch account. Possible websites with in- formation on companies include the following: Bloomberg: http://www.bloomberg.com CNN/Money: http://money.cnn.com Forbes: http://www.forbes.com Google: http:///www.google.com/finance MarketWatch: http://www.marketwatch.com Morningstar: http://www.morningstar.com MSN Money: http://moneycentral.msn.com/ investor Reuters: http://www.investor.reuters.com Yahoo! Finance: http://finance.yahoo.com The watch account will help you follow the stocks over time and keep track of your gains or losses.
2. One successful portfolio manager, Peter Lynch, has suggested that you should buy stock in com- panies that you know or whose products you use. Since this strategy may be as good a start- ing point as any to learn about investing, I have selected five stocks I know or whose products I use. You should select five and track your five against mine. Using the information in the pre- vious assignment, set up a watch account that includes both sets. My stocks and their ticker symbols are Coca-Cola (KO) ExxonMobil (XOM) Merck (MRK) Tupperware (TUP) Washington Real Estate Investment Trust (WRE) Since disclosure is important in investments, you should know that I had a position in each stock at the time this text went to press.