26. This is a growing perpetuity. The present value of a growing perpetuity is:
PV = C / (r g)
PV = $215,000 / (.10 .04)
PV = $3,583,333.33
It is important to recognize that when dealing with annuities or perpetuities, the
present value equation calculate
TUTORIAL8:THEFOREIGNEXCHANGEMARKET
Name:
Studentnumber:
Tutorialdayandtime:
1. What is an exchange rate? Which currency is most often used when valuing a countrys
exchange rate?
2. A FX dealer provides a quote of AUD/USD 0.9028-33.
a. Identify the commodi
28. This is an in-depth capital budgeting problem. Probably the easiest OCF calculation
for this problem is the bottom up approach, so we will construct an income statement
for each year. Beginning with the initial cash flow at time zero, the project will
CHAPTER 6
MAKING CAPITAL INVESTMENT
DECISIONS
Answers to Concepts Review and Critical Thinking Questions
1.
In this context, an opportunity cost refers to the value of an asset or other input that will be
used in a project. The relevant cost is what the a
CHAPTER 4, APPENDIX
NET PRESENT VALUE: FIRST
PRINCIPLES OF FINANCE
Solutions to Questions and Problems
NOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require
multiple steps. Due to space and readability constraints, when
CHAPTER 3
FINANCIAL STATEMENTS ANALYSIS
AND LONG-TERM PLANNING
Answers to Concepts Review and Critical Thinking Questions
1.
Time trend analysis gives a picture of changes in the companys financial situation
over time. Comparing a firm to itself over time
60. To find the APR and EAR, we need to use the actual cash flows of the loan. In other
words, the interest rate quoted in the problem is only relevant to determine the total
interest under the terms given. The cash flows of the loan are the $20,000 you m
40. To solve this problem, we simply need to find the PV of each lump sum and add
them together. It is important to note that the first cash flow of $1 million occurs
today, so we do not need to discount that cash flow. The PV of the lottery winnings
is:
CHAPTER 4
DISCOUNTED CASH FLOW
VALUATION
Answers to Concepts Review and Critical Thinking Questions
1.
Assuming positive cash flows and interest rates, the future value increases and the present
value decreases.
2.
Assuming positive cash flows and interes
CHAPTER 2
FINANCIAL STATEMENTS AND CASH
FLOW
Answers to Concepts Review and Critical Thinking Questions
1.
True. Every asset can be converted to cash at some price. However, when we are referring to
a liquid asset, the added assumption that the asset can
TUTORIAL 10: Futures Market, BAB and SPI
futures
Name:
Student number:
Tutorial day and time:
1. Explain the common features of futures and forward contracts and
how a nondeliverable futures contract differs from a forward
contract for the same item.
2. E