principle of corporate finance solution Essay - 1401 Words

CHAPTER 2 How to Calculate Present Values Answers to Problem Sets 1. If the discount factor is .507, then .507*1.126 = $1 2. 125/139 = .899 3. PV = 374/(1.09)9 = 172.20 4. PV = 432/1.15 + 137/(1.152) + 797/(1.153) = 376 + 104 + 524 = $1,003 5. FV = 100*1.158 = $305.90 6. NPV = -1,548 + 138/.09 = -14.67 (cost today plus the present value of the perpetuity) 7. PV = 4/(.14-.04) = $40 8. a. PV = 1/.10 = $10 b. Since the perpetuity will be worth $10 in year 7, and since that is roughly double the present value, the approximate PV equals $5. PV = (1 / .10)/(1.10)7 = 10/2= $5 (approximately) c. A perpetuity paying $1 starting now would be worth $10, whereas a†¦show more content†¦From this equation, we can solve for the amount to be put aside each year. PV(boat) = $20,000/(1.10)5 = $12,418 PV(savings) = Annual savings Because PV(savings) must equal PV(boat): Annual savings Annual savings Another approach is to use the future value of an annuity formula: Annual savings = $ 3,276 22. The fact that Kangaroo Autos is offering â€Å"free credit† tells us what the cash payments are; it does not change the fact that money has time value. A 10% annual rate of interest is equivalent to a monthly rate of 0.83%: rmonthly = rannual /12 = 0.10/12 = 0.0083 = 0.83% The present value of the payments to Kangaroo Autos is: A car from Turtle Motors costs $9,000 cash. Therefore, Kangaroo Autos offers the better deal, i.e., the lower present value of cost. 23. The NPVs are: at 5% at 10% at 15% The figure below shows that the project has zero NPV at about 11%. As a check, NPV at 11% is: 24. a. This is the usual perpetuity, and hence: b. This is worth the PV of stream (a) plus the immediate payment of $100: PV = $100 + $1,428.57 = $1,528.57 c. The continuously compounded equivalent to a 7% annually compounded rate is approximately 6.77%, because: e0.0677 = 1.0700 Thus: Note that the pattern of payments in part (b) is more valuable than the pattern of payments in part (c). It is preferable to receive cash flows at the start of every year than to spread theShow MoreRelatedCorporate Finance 9th Edition Mini Case Solutions Essay1598 Words   |  7 PagesDownload Ebook Corporate Finance 9th Edition Mini Case Solutions PDF at Online Ebook Library CORPORATE FINANCE 9TH EDITION MINI CASE SOLUTIONS PDF Download: CORPORATE FINANCE 9TH EDITION MINI CASE SOLUTIONS PDF Are you seeking Ebook CORPORATE FINANCE 9TH EDITION MINI CASE SOLUTIONS PDF?. Acquiring Ebook Corporate Finance 9th Edition Mini Case Solutions PDF is easy as well as easy. Mostly you have to spend much time to browse on search engine and also does not get Ebook Corporate Finance 9th EditionRead More The Importance of Improving Communication Skills in the Business World998 Words   |  4 Pagesto move up the corporate ladder is interpersonal communication with co-workers and presentation speeches in front of the owners and financial managers. 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