The opportunity cost rate is the rate of interest one could earn on an alternative investment with a
risk equal to the risk of the investment in question. This is the value of r in the TVM equations,
and it is shown on the top of a
This point is demonstrated in Table 11-1 and Figures 11-2 and 11-3 in the textbook. The marginal
cost of capital is a weighted average of debt, preferred stock, and equity.
This statement is not valid, because the cost of re
Project classification schemes can be used to indicate how much analysis is required to evaluate a
given project, the level of the executive who must approve the project, and the required rate of
return that should be used to calcu
The two principal reasons for holding cash are for transactions and compensating balances. The
target cash balance is not equal to the sum of the holdings for each reason because the same
money can often partially satisfy both mo
Accounts payable, accrued wages, and accrued taxes increase spontaneously and proportionately
with sales. Retained earnings increase, but not proportionately.
The firm needs less manufacturing facilities, raw materia
If interest rates increase after a bond has been issued, the market value of the bond will decrease.
Investors can earn the higher yields on alternative investments with similar risk, and thus they
will only buy previously issued b
8. Present value of annuities Aa Aa B
Your uncle has said that if you agree to finish college he will give you equal payments of $3,500 at the end of each
year for the next five years. If the annual interest rate stays constant at 9%, what is the value of
Now that you've thought about the docision rule that should be applied to your decision, apply it to the following
security offered by your broker:
Jing Associates, LLC, a large law firm in Denver, is building a new office complex. To pay for the construc
1. Green Caterpillar is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest
and taxes (EBIT).
2. The company's operating costs (excluding depreciation and amortization) remain at 60% o
'7. PV of a lump sum
Calculate the present value of $50,000 due in 7 years if the appropriate discount rate is 6%. Assume annual discounting.
Please enter 2 digits alter the decimal point.
Which of the following statements about annuities are true? Check all that apply.
X D An annuity due earns more interest than an ordinary annuity of equal time.
\I Ordinary annuities make fixed payments at the end of each period for a certain time period.
4. Future value of annuities - 1 A3 Aa a
When equal payments are made at fixed intervals for a specified number of periods, you will treat them as
an annuity 1/ .
Explanation: Open v
You are planning to put 2500 in the bank at the end of each year for the
Given the results of the previous income statement calculations, complete the following statements:
c In Year 2, if Green Caterpillar has 5,000 shares of preferred stock issued and outstanding, then
each preferred share should expect to receive $40.00 v/
9. Calculate annuity cash flows Aa Aa B
Your goal is to have $7,500 in your bank account by the end of five years. If the interest rate remains constant at
9% and you want to make annual identical deposits, how much will you need to deposit in your accoun
W of a lump sum 2
4) Calculate the future value of $6,000 in 15 years if it is invested in an account with an annual percentage rate (APR) of 8%
Please enter 2 digits aﬂer the decimal point.