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Unformatted text preview: FNAN 301, Spring 2010, final, solutions Quantitative: compute present value of two cash flows of different signs 1. Sang bought a new truck today from Terzolo Trucks. What is the present value of the cash flows associated with this transaction if the discount rate is 12.4 percent, Sang will receive a rebate of $2,000 from Terzolo Trucks in 1 year, and Sang will pay $32,000 to Terzolo Trucks in 4 years? Note: the correct answer is less than zero. 1. Sang bought a new truck today from Terzolo Trucks. What is the present value of the cash flows associated with this transaction if the discount rate is 12.4 percent, Sang will receive a rebate of $3,000 from Terzolo Trucks in 1 year, and Sang will pay $34,000 to Terzolo Trucks in 4 years? Note: the correct answer is less than zero. 1. Sang bought a new truck today from Terzolo Trucks. What is the present value of the cash flows associated with this transaction if the discount rate is 12.4 percent, Sang will receive a rebate of $4,000 from Terzolo Trucks in 1 year, and Sang will pay $36,000 to Terzolo Trucks in 4 years? Note: the correct answer is less than zero. 1. Sang bought a new truck today from Terzolo Trucks. What is the present value of the cash flows associated with this transaction if the discount rate is 12.4 percent, Sang will receive a rebate of $5,000 from Terzolo Trucks in 1 year, and Sang will pay $37,000 to Terzolo Trucks in 4 years? Note: the correct answer is less than zero. 1 FNAN 301, Spring 2010, final, solutions Conceptual and quantitative: present value of a single cash flow and an annuity due 2. The Box Office Video Company just bought 1,000 BluRay discs from Family Studios. Box Office Video has been offered the 3 possible payment options described in the table. If the discount rate is 12.0%, which one of the assertions is true? Option Terms of payment (amount and timing) from Box Office Video to Family Studios A A series of annual payments of $4,000, with the first payment due later today and the last payment due in 7 years from today B $21,000 today C $29,000 in 3 years A. Box Office Video should prefer option A more than option B and Box Office Video should prefer option C more than option B B. Box Office Video should prefer option A more than option B and Box Office Video should not prefer option C more than option B C. Box Office Video should not prefer option A more than option B and Box Office Video should prefer option C more than option B D. Box Office Video should not prefer option A more than option B and Box Office Video should not prefer option C more than option B 2. The Box Office Video Company just bought 1,000 BluRay discs from Family Studios. Box Office Video has been offered the 3 possible payment options described in the table. If the discount rate is 12.0%, which one of the assertions is true?...
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 Spring '09
 MURRAY
 Net Present Value

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