CHAPTER 4
INTRODUCTION TO VALUATION: THE
TIME VALUE OF MONEY
Answers to Concepts Review and Critical Thinking Questions
Solutions to Questions and Problems
Basic
1.
The time line for the cash flows is:
0
10
$7,500
FV
The simple interest per year is:
$7,50

Assignment 5 - Solution
1.
The time line is:
0
1
2
3
4
PV
$830
$610
$1,140
$1,390
To solve this problem, we must find the PV of each cash flow and add them. To find the PV of a
lump sum, we use:
PV = FV / (1 + r)t
PV@10% = $830 / 1.10 + $610 / 1.102 + $1,

CHAPTER 2
WORKING WITH FINANCIAL
STATEMENTS
2.
The income statement starts with revenues and subtracts costs to arrive at EBIT. We then
subtract out interest to get taxable income, and then subtract taxes to arrive at net income.
Doing so, we get:
Income

CHAPTER 3
WORKING WITH FINANCIAL
STATEMENTS
1.
To find the current assets, we must use the net working capital equation. Doing so, we find:
NWC = Current assets Current liabilities
$1,730 = Current assets $5,140
Current assets = $6,870
Now, use this numbe

CHAPTER 1
INTRODUCTION TO CORPORATE
FINANCE
Answers to Concepts Review and Critical Thinking Questions
1.
Capital budgeting (deciding on whether to expand a manufacturing plant), capital structure (deciding
whether to issue new equity and use the proceeds

CHAPTER 7
EQUITY MARKETS AND STOCK
VALUATION
Basic
1.
The constant dividend growth model is:
Pt = Dt (1 + g) / (R g)
So, the price of the stock today is:
P0 = D0 (1 + g) / (R g)
P0 = $1.95(1.041) / (.102 .041)
P0 = $33.28
The dividend at Year 4 is the div

CHAPTER 6
INTEREST RATES AND BOND VALUTION
3.
The price of any bond is the PV of the interest payment, plus the PV of the par value. Notice this
problem assumes an annual coupon. The price of the bond will be:
P = $60(cfw_1 [1/(1 + .08)]9 / .08) + $1,000[

CHAPTER 9
MAKING CAPITAL INVESTMENT
DECISIONS
Solutions to Questions and Problems
1.
The $7.5 million acquisition cost of the land six years ago is a sunk cost. The $10.3 million current
aftertax value of the land is an opportunity cost if the land is use