NPV = PV(CFs) – Investment = -C0 +C1/(1+r)+C2/(1+r)2+C3/(1+r)3+… = ∑(Expected CFt)/(1+r)t – Investment * Perpetuity – pays a fixed amount C per period forever * P(C‚r) = C/r requires cash flow to begin NEXT period. If begin now‚ then PV = C + C/r * Annuity – fixed stream of cash flows that has a final period t * A(C‚r‚t) = C/r [1-1/(1+r)t] * Growing Perpetuity – G(C‚r‚g) = C/(r-g) C is initial cash flow‚ r is discount rate‚ g is growth rate * P/E = 1/(r-g)
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Solutions Manual Fundamentals of Corporate Finance 9th edition Ross‚ Westerfield‚ and Jordan Updated 12-20-2008 CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE Answers to Concepts Review and Critical Thinking Questions 1. Capital budgeting (deciding whether to expand a manufacturing plant)‚ capital structure (deciding whether to issue new equity and use the proceeds to retire outstanding debt)‚ and working capital management (modifying the firm’s credit collection policy with its customers). Disadvantages:
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www.virtualinspire.com ACC501 Current 11 Solved Finalterm Papers and Important MCQS Solved… By EXAMINATION Question No: 1 ( Marks: 1 ) - Please choose one The accounting definition of income is: ►Income = Current Assets -Current Liabilities ►Income = Fixed Assets - Current Assets ►Income = Revenues - Current Liabilities ►Income = Revenues - Expenses pg 17 Question No: 2 ( Marks: 1 ) - Please choose one What would be the capital spending for an organization who has purchased fixed assets
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Part 2 Fundamentals of Financial Markets Chapter 3 What Do Interest Rates Mean and What is Their Role in Valuation? Measuring Interest Rates Present Value Four types of Credit Market Instruments Yield to Maturity Global Box: Negative T-Bill Rates? Japan Shows the Way The Distinction Between Real and Nominal Interest Rates The Distinction Between Interest Rates and Returns Mini-Case Box: With TIPS‚ Real Interest Rates Have Become Observable in the United States Maturity and the Volatility of Bond
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Chapter 5 Interest Rates 5-1. Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of a. Six months. b. One year. c. One month. a. Since 6 months is [pic] of 2 years‚ using our rule [pic] So the equivalent 6 month rate is 4.66%. b. Since one year is half of 2 years [pic] So the equivalent 1 year rate is 9.54%. c
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5.4. You have found three investment choices for a one-year deposit: 10% APR Compounded monthly‚ 10% APR compounded annually‚ and 9% APR compounded daily. Compute the EAR for each investment choice. (Assume that there are 365 days in the year.) Sol: 1+EAR= (1+r/k)k So‚ for 10% APR compounded monthly‚ the EAR is 1+EAR= (1+0.1/12)12 = 1.10471 => EAR= 10.47% For 10% compounded annually‚ the EAR is 1+EAR= (1+0.1)=1.1 * EAR= 10% (remains the same). For 9% compounded daily 1+EAR= (1+0
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1. (TCO A) Which of the following statements is CORRECT? (Points : 10) One of the disadvantages of a sole proprietorship is that the proprietor is exposed to unlimited liability. It is generally easier to transfer one’s ownership interest in a partnership than in a corporation. One of the advantages of the corporate form of organization is that it avoids double taxation. One of the advantages of a corporation from a social standpoint is that every stockholder has
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CHAPTER 6 NET PRESENT VALUE AND OTHER INVESTMENT CRITERIA Answers to Concepts Review and Critical Thinking Questions 1. Assuming conventional cash flows‚ a payback period less than the project’s life means that the NPV is positive for a zero discount rate‚ but nothing more definitive can be said. For discount rates greater than zero‚ the payback period will still be less than the project’s life‚ but the NPV may be positive‚ zero‚ or negative‚ depending on whether the discount rate is less than
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Introduction to Financial Management UNIT 1 INTRODUCTION TO FINANCIAL MANAGEMENT Structure Nos. 1.0 1.1 1.2 1.3 1.4 Introduction Objectives Evolution of Financial Management Significance of Financial Management Principles of Financial Management 1.4.1 1.4.2 1.4.3 1.4.4 1.5 1.6 1.7 5 6 6 6 8 Investment Decision Financing Decision Dividend Decision Liquidity Decision Objectives of Financial Management Economic Profit vs. Accounting Profit Agency Relationship
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Finance Final Study Guide FIN 331 – Moser – Study Guide for Exam 1 – Spring 2011 Important Concepts * Forms of Business Organization * Proprietorship- an unincorporated business owned by one individual * Partnership- legal arrangement between two or more people who decide to do business together * Advantages * Ease of formation * Subject to few regulations * No corporate income taxes * Disadvantages * Limited life
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