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Author Question: Steve Hawke is a football star who has been offered contracts by two different teams. The payments ... (Read 13 times)

Tiffanyanne824

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on: Aug 7, 2023

Question 1

Sorenson Stores is considering a project that has the following cash flows:

Year

Cash Flow

0

CF0 = ?

1

$3,000

2

4,000

3

2,000

4

3,500

The project has a payback of 2.8 years, and the firm’s cost of capital is 13%. What is the project’s NPV?


◦

$720.17


◦

$765.91


◦

$849.80


◦

$891.32



Question 2

Steve Hawke is a football star who has been offered contracts by two different teams. The payments (in millions of dollars) under the two contracts are shown below:

​

​

​

Team A

Team B

Year

Cash Payment

Cash Payment

0

$9.0

$3.0

1

5.0

5.0

2

5.0

5.0

3

5.0

10.0

4

5.0

9.0

​

​

Steve plans to accept the contract that provides him with the highest NPV. At what discount rate would he be indifferent between the two contracts?


◦

9.66%


◦

10.65%


◦

11.35%


◦

12.55%

Financial Management: Theory and Practice ¦ Brigham, Ehrhardt, Gessaroli, Nason ¦ 4th Edition
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Marked as best answer by Tiffanyanne824 on Aug 7, 2023

Talvinder.Singh

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Reply #1 on: Aug 7, 2023
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Tiffanyanne824

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Reply 2 on: Aug 7, 2023
Thanks for the timely response, appreciate it

shewald78

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Reply 3 on: Yesterday
Wow, this really help

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