REVIEW
EX 1
At an interest rate of 12%, the ten-year
discount factor is 0.322. How many
dollars is $2.05 worth in ten years if
invested at 12%?
9-2
EX 2
If the PV of $249 is $200, what is the
discount factor?
9-3
EX 3
A portfolio contains equal investme
Exercises
EX1
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $51,000. The object is to save on horse transporter
rentals. Marsha had been renting a transporter every other week for $216 per
day plus $1.80 per
Exercise 7
EX1
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $51,000. The object is to save on horse transporter
rentals. Marsha had been renting a transporter every other week for $216 per
day plus $1.80 pe
Exercise 2
EX1
A factory costs $800,000. You reckon that it will produce an inow after
operating costs of $170,000 a year for 10 years.
If the opportunity cost of capital is 14%, what is the net present value of
the factory? [86,739.66]
What will the fa
Exercise 5
EX1
Consider the following information:
Cash ows/yea
Project
C0
C1
C2
C3
A
-5,000
1,000
1,000
3,000
C4
0
B
-1,000
0
1,000
2,000
3,000
C
-5,000
1,000
1,000
3,000
5,000
1. What is the payback period on each of the above projects? [3; 2; 3]
2. Giv
Exercise 4
EX1
Company Y does not plow back any earnings and is expected to produce a
level dividend stream of $5 a share. If the current stock price is $40, what is
the market capitalization rate? [12.5%]
EX2
Company Z's earnings and dividends per share
EXERCISES IN CLASS 2
EX 11
OM Construction Company must choose between two types of cranes. Crane A costs $600,000, will last for
five years, and will require $60,000 in maintenance each year. Crane B costs $750,000, will last for seven
years, and will re
Exercise 3
EX1
A 10-year bond is issued with a face value of $1,000, paying interest of $60
a year. Assume market yields increase shortly after the T-bond is issued.
a. What happens to the bond's coupon rate? (Rises, fall or stays the same?)
b. What happe
Exercise 6
EX1
Mr. Art Deco will be paid $210,000 one year hence. This is a nominal ow,
which he discounts at an 9% nominal discount rate:
PV +
210,000
1.09
= 192, 661
The ination rate is 2%. Calculate the PV of Mr. Deco's payment using the
equivalent rea
Exercise 1
EX1
At an interest rate of 12%, the six-year discount factor is 0.507. How many
dollars is $0.507 worth in six years if invested at 12%? [1]
EX2
If the PV of $139 is $125, what is the discount factor? [0.899]
EX3
A project produces a cash ow of