This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
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?...
View
Full
Document
This note was uploaded on 02/03/2011 for the course FINANCE 301 taught by Professor Murray during the Spring '09 term at George Mason.
 Spring '09
 MURRAY

Click to edit the document details