Q9.1
a. What is an opportunity cost rate?
A rate of return you could earn on an investment with similar risks.
b. How is this rate used in time value analysis?
The investment decision automatically locks up the funds required for this particular investmen

Q15.1
a.
To properly forecast the rate of return needed on a certain investment. the higher the risk, the higher
the required rate of return should be. The validity of risk assessment will, ultimately, decide whether the
business will be a success or fail

P15.1
a.
To properly forecast the rate of return needed on a certain investment. the higher the risk, the higher
the required rate of return should be. The validity of risk assessment will, ultimately, decide whether the
business will be a success or fail

P14.2
Better Health, Inc., is evaluating two investment projects, each of which requires an up-front expenditure
of $1.5 million. The projects are expected to produce the following net cash inflows:
Year
Project A
Project B
0
(1,500,000)
(1,500,000)
1
$50

P14.1
Winston Clinic is evaluating a project that costs $52,125 and has expected net cash inflows of $12,000
per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost
of capital of 12 percent.
a. What is

P13.1 (a-c)
Seattle Health Plans currently uses zero-debt financing. Its operating income (EBIT) is $1 million, and it
pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all-equity financed, $5 million
in equity. Suppose the f

P13.3
St. Vincents Hospital has a target capital structure of 35 percent debt and 65 percent equity. Its cost of
equity (fund capital) estimate is 13.5 percent and its cost of tax-exempt debt estimate is 7 percent. What
is the hospitals corporate cost of

P12.1
A person is considering buying the stock of two home health companies that are similar in all respects
except the proportion of earnings paid out as dividends. Both companies are expected to earn $6 per
share in the coming year, but Company D (for d

P12.9
California Clinics, an investor-owned chain of ambulatory care clinics, just paid a dividend of $2 per
share. The firms dividend is expected to grow at a constant rate of 5 percent per year, and investors
require a 15 percent rate of return on the s

P9.1
Find the following values for a lump sum assuming annual compounding:
FVn=PV x (1+I)n
PVn = FV (1 + I)n
a. The future value of $500 invested at 8 percent for one year
FV1=$500 x (1+0.08)1=$540
b. The future value of $500 invested at 8 percent for fiv