金融学教学课件bodie2echapter06.ppt

Illustration of point 1 A firm whose average cost of capital for its existing assets is 16% per year gets an opportunity to purchase riskless U.S. T-bonds at below-market prices. Suppose that 25-year U.S. T-bonds paying $100 per year are selling in the market at $1000, and the firm could buy $1 million worth of these bonds for $950 each. If these cash flows are discounted at the firm’s cost of capital 16% per year, the present value of each bond is $634, and the NPV of the project would be -$315,830, which means it should be rejected. Common sense: you can buy something for $950 a