Answer:
Present Value 5,715,331.32
We are going to accept the project only if the initial investment is at 5,715,331 or below in order to achieve the return to support the cost of capital structure of the company
Accepting a project with a higher cost will not generate enought cashflow to sustain the patyment of debt and the return expected from the stockholders therefore, will generate a economic result and investor will leave the company for other which can sustain their desired return.
Explanation:
We are going to discount the yearly cash-flow at the given rate of 12.50%
then, the terminal value which is the present value of the future period will also be discounted at this rate.
The sum of all this will be the present value of the firm.
![\left[\begin{array}{ccc}$Year&$Cash Flow&$Discounted\\1&575000&511111.11\\2&625000&493827.16\\3&650000&456515.77\\4&725000&452613.93\\5&850000&471689.61\\$terminal&6000000&3329573.74\\Present&Value&5715331.32\\\end{array}\right]](https://tex.z-dn.net/?f=%5Cleft%5B%5Cbegin%7Barray%7D%7Bccc%7D%24Year%26%24Cash%20Flow%26%24Discounted%5C%5C1%26575000%26511111.11%5C%5C2%26625000%26493827.16%5C%5C3%26650000%26456515.77%5C%5C4%26725000%26452613.93%5C%5C5%26850000%26471689.61%5C%5C%24terminal%266000000%263329573.74%5C%5CPresent%26Value%265715331.32%5C%5C%5Cend%7Barray%7D%5Cright%5D)
The formula we use the present value of a lump sum:
We are going to accept the project only if the initial investment is at 5,715,331 or below in order to achieve the return to support the cost of capital estructure of the company
Answer:
Outbreak
Explanation:
Outbreak has been defined as the sudden increase in occurence of a particular disease in a specific period of time and at a specific place. When people have something in common to explain why they all got thesame illness, it is called an outbreak. Any disease becomes an outbreak when it occurs in greater numbers than expected for a given region or community during a specified period of time or season.
The spread between the interest rates on bonds with default risk and default-free bonds is called the risk premium.
A default-free bond is a bond in which the bond issuer would not miss scheduled payments of either the coupon or principal. Bonds issued by the government are generally considered to be default-free. This is because the government can print money to make payments.
A bond with a default risk is a bond in which the bond issuer can miss scheduled payments of either the coupon or the principal. Bonds issued by private individuals are generally considered to be bonds with default risk.
Bondholders usually demand a compensation for holding bonds with a default risk. This compensation is known as risk premium.
Risk premium = return on bonds with default risk - return on default- free bond.
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