ASSIGNMENT 3MGF 301Corporation FinanceSpring 2009DUE: Monday, March 23rd at 6:00pm in Jacobs 365 You may in a group of up to 4 on this Assignment. Please indicate clearly on all submitted Assignments who the members of the group are. Please note, all assignments submitted with more than 4 group members will automatically receive a 0 grade. No late assignments will be accepted. You may hand in the assignment in person in Jacobs 365 (put it under the door if no one is there) or submit it by email to the Digital Dropbox on UBLearns before the time it is due. All electronic submissions must be to the Digital Dropbox (go to Control Panel, Digital Dropbox and hit “Send file”). Note: If you use Digital Dropbox, please follow all the Digital Dropbox rules (see Syllabus).________________________________________________________________________________________________________Answer the following questions. For each, show your work and explain your answer.1. Find an announcement of new information made within a month from today (i.e., earnings announcement, merger, etc.) for any publicly traded stock that moves the stock price at least 1%. Print out or draw a chart that shows at least 2 days before the event andat least one day after. (Note: I use the 5 day chart in Yahoo finance, but you are welcome to use any online charting service). Using this chart, analyze if the evidence is consistent with semi-strong form market efficiency. [Note: make sure you find the first announcement of the information.]2. Geothermal corporation issued a press release before the stock market opened announcing that its earnings have decreased by 30% over the last year earnings. Explain how each of the following individual scenarios can be consistent with the semi-strong form of market efficiency.(a) When trading opened after the announcement and throughout the first day, there was no stock price change after the company announced the 30% decrease in earnings. (b) The stock price of Geothermal increased slowly over the 30 days before the announcement of the 30% decrease in earnings.(c) The stock price decreased by 10% immediately following the announcement but then increased throughout the day so that the closing price was only 2% below the previous day.3. Suppose Peach Paving invests $5 million today (i.e., C0 = -5,000,000) on a new construction project. The project is expected to generate annual cash flows of C1 = -500,000; C2 = 1,000,000 and then $1,500,000 in perpetuity for period C3 and beyond. If the appropriate discount rate is 11% and management’s payback period cutoff is 7 years: (a) What is the payback period for the project? Show your work(b) What is the net present value of the project ? Show your work(c) Under which method above should the company accept the project? Explain4. MMW forecasts the following cash flows on a project under consideration:C0 = -2,000,000; C1 = 400,000; C2 = 1,200,000; C3 = 1,600,000.If MMW uses the internal rate of return (IRR), should this project be accepted if the required rate of return is 13%? Explain and show your work.5. A new machine will require an initial outlay of $500,000, but it will increase the firm’scash flows by $100,000 a year for each of the next 8 years. (a) Using NPV, is the system worth installing if the required rate of return is 9 percent? Explain and show your work.(b) How high can the discount rate be before you would reject the project? Explain and show your
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