Practice Corporate Finance

Atlantic Marine Transport Corporation is considering the purchase of a new bulk carrier for $9 million. The forecasted revenues are $5.5 million a year and operating costs are $4 million. A major refit costing $2 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $1 million.

a. What is the NPV if the opportunity cost of capital is 10%? (10 points)

b. Should the company accept the purchase of the carrier? (5 points)

c. What is the IRR of this project? (10 points)

d. What is the payback period? (10 points)

 

Here are data on $1,000 par value bonds issued by Walmart and Pfizer. Assume you are thinking about buying these bonds.

Walmart

Pfizer

Coupon

5%

4%

Years to Maturity

20

10

Required Return

4%

6%

Answer the following questions:

a) Assuming interest is paid annually, calculate the values of each of the bonds (10 points)

b) How would these values change if the coupon was paid semiannually (10 points)

c) How would change the price of each bond if the required rate of return (current 4% for Walmart and 6% for the Pfizer and with annual coupon) increased by 2% (10 points). What will you deduce about the relationship between market interest rate and bond prices? (10 points).

 

Sample Solution

Firstly, Vittola discusses one of the just causes of war, most importantly, is when harm is inflicted but he does mention the harm does not lead to war, it depends on the extent or proportionality, another condition to jus ad bellum (Begby et al (2006b), Page 314). Frowe, however, argues the idea of “just cause” based on “Sovereignty” which refers to the protection of political and territorial rights, along with human rights. In contemporary view, this view is more complicated to answer, given the rise of globalisation. Similarly, it is difficult to measure proportionality, particularly in war, because not only that there is an epistemic problem in calculating, but again today’s world has developed (Frowe (2011), Page 54-6).
Furthermore, Vittola argues war is necessary, not only for defensive purposes, ‘since it is lawful to resist force with force,’ but also to fight against the unjust, an offensive war, nations which are not punished for acting unjustly towards its own people or have unjustly taken land from the home nation (Begby et al (2006b), Page 310&313); to “teach its enemies a lesson,” but mainly to achieve the aim of war. This validates Aristotle’s argument: ‘there must be war for the sake of peace (Aristotle (1996), Page 187). However, Frowe argues “self-defence” has a plurality of descriptions, seen in Chapter 1, showing that self-defence cannot always justify one’s actions. Even more problematic, is the case of self-defence in war, where two conflicting views are established: The Collectivists, a whole new theory and the Individualists, the continuation of the domestic theory of self-defence (Frowe (2011), Page 9& 29-34). More importantly, Frowe refutes Vittola’s view on vengeance because firstly it empowers the punisher’s authority, but also today’s world prevents this action between countries through legal bodies like the UN, since we have modernised into a relatively peaceful society (Frowe (2011), Page 80-1). Most importantly, Frowe further refutes Vittola through his claim that ‘right intention cannot be used as an excuse to wage war in response to anticipated wrong,’ suggesting we cannot just harm another just because they have done something unjust. Other factors need to be considered

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