Assume a World According to the Hirshleifer Model - Accounting and Finance Assignment Help

Assignment Task:

Task:

Part A: Multiple Choice questions (75 points)

1. Assume a world according to the Hirshleifer model. The income of Adrian at t = 0 and t = 1 (CF0 and CF1) is equal to €100,00 and €204,00 respectively. Adrian lacks investment possibilities. The risk free interest rate is 2,00%. At t = 1 Adrian consumes €51,00 (C1).

Question: At t = 0 the consumption of Adrian (C0) is closest to a. €240 b. €250 c. €260 d. €270 2. Assume a world according to the Hirshleifer model. The income of Petri at t = 0 and t = 1 (CF0 and CF1) is €120,00 and €102,00 respectively. At t = 1 Petri pays off his loan including interest. The interest he pays is €3,00. The risk-free interest rate is 2,00%. The proceeds from the investments in real projects are €450,00 (OF) and the internal rate of return (IRR) of the investment in real projects is 200,00%. Consider the figure below (not drawn to scale).

Question: At t = 0 the maximum consumption of Petri (OG) is closest to a. €431 b. €436 c. €505 d. €511 - 3 - 3. On June 30, 2019 the number of outstanding shares of Felyks Scooters NV is 15,0 mln. On that day the book value of equity is €80 mln, the price per share €12, the amount of cash and cash equivalents €3 mln, the net fixed assets €4 mln, the payables €2 mln, the inventories €2 mln and the market value of interest bearing debt €45 mln. Question: On June 30, 2019 the enterprise value of Felyks Scooters NV is closest to a. €125 mln b. €219 mln c. €222 mln d. €225 mln

4. During the lecture of Week 2 we have discussed among other things the concepts Net Present Value (NPV) and Economic Value Added (EVA). Consider Project X. Project X is a real project that involves an investment at t = 0 of €1.000 and only one expected cash flow at t = 1 of €1.210. The opportunity cost of capital is 10,00%.

Question: The expected EVA at t = 1 of project X is closest to a. €100 b. €110 c. €160 d. €210 5. At t = 0 you are considering to invest in some real estate. The investment outlay at t = 0 is €5.120.000. The expected cash flow at t = 1 is €126.000. The expected cash flow at t = 2 is €157.500 and will increase at an annual rate of 2,00% for ever (i.e. the expected cash flow at t = 3 is €157.500 × 1,02). The required rate of return is 4,00%.

Question: The internal rate of return (IRR) of the investment is closest to a. 3% b. 4% c. 5% d. 6%

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