that essentially keeps the machine in new condition forever. Net of the cost of the service contract‚ the machine would then produce cash flows of $4‚500 per year in perpetuity. Should Rainbow Products purchase the machine with the service contract? 3. Instead of the service contract‚ Rainbow engineers have devised a different option to preserve and actually enhance the capability of the machine over time. By reinvesting 20% of the annual cost savings back into new machine parts‚ the engineers can
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Chapter 06 Discounted Cash Flow Valuation Multiple Choice Questions 1. An ordinary annuity is best defined by which one of the following? A. increasing payments paid for a definitive period of time B. increasing payments paid forever C. equal payments paid at regular intervals over a stated time period D. equal payments paid at regular intervals of time on an ongoing basis E. unequal payments that occur at set intervals for a limited period of time 2. Which one of the following
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compounded per year and t = number of years P= A/ (1+r/n) nt P = 1‚350‚000/ (1+0.08/1)31 P =1‚350‚000/ (1.08)31 P =1‚350‚000/ 10.868 The amount required for a lump sum deposit is $124‚217.89 3. If an additional $1‚500 from my employer bonus plan is deposited annually to the retirement account and a $25‚000 is added to the account after 19 years (on my 55th birthday)‚ then; using the total annual contribution obtained in (1)‚ The first deductions
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Study notes By Zhipeng Yan Corporate Finance Stephen A. Ross‚ Randolph W. Westerfield‚ Jeffrey Jaffe Chapter 1 Introduction to Corporate Finance ..................................................................... 2 Chapter 2 Accounting Statements and Cash Flow.............................................................. 3 Chapter 3 Financial Markets and NPV: First Principles of Finance................................... 6 Chapter 4 Net Present Value....................................
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We now calculate the PV of debt tax shield Year Debt Outstanding at Start of Year Interest Interest Tax Shields Present Value of Tax Shields 1 5‚000‚000 400‚000 140‚000 129‚630 2 4‚500‚000 360‚000 126‚000 108‚025 3 4‚000‚000 320‚000 112‚000 88‚909 4 3‚500‚000 280‚000 98‚000 72‚033 5 3‚000‚000 240‚000 84‚000 57‚169 6 2‚500‚000 200‚000 70‚000 44‚112 7 2‚000‚000 160‚000 56‚000 32‚675 8 1‚500‚000 120‚000 42‚000
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Chapter 8 Integrative Problem Assume that you recently graduated with a major in finance‚ and you just landed a job in the trust department of a large regional bank. Your first assignment is to invest $100‚000 from an estate for which the bank is trustee. Because the estate is expected to be distributed to the heirs in approximately one year‚ you have been instructed to plan for a 1-year holding period. Furthermore‚ your boss has restricted you to the following investment alternatives‚ shown
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Minicase #17 Electronic Timing‚ Inc. Electronic Timing‚ Inc. (ETI)‚ is a small company founded 15 years ago by electronics engineers Tom Miller and Jessica Kerr. ETI manufactures integrated circuits to capitalize on the complex mixed-signal design technology and has recently entered the market for frequency timing generators‚ or silicon timing devices‚ which provide the timing signals or “clocks” necessary to synchronize electronic systems. Its clock products originally were used in PC video
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Problem Set #3: Edited Version Page 100 – Problems and Applications 1. The three functions of money are medium of exchange‚ unit of account‚ and store of value. Medium of exchange refers to money being accepted as everyday currency‚ that you can go into a store and be confident in the fact that they will accept your money for goods and services. Store of value is defined as the ability of money to retain its value of time; in other words‚ $100 today will be $100 tomorrow‚ next month or 6
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Decisions made by financial managers should primarily focus on increasing which one of the following? A. size of the firm B. growth rate of the firm C. gross profit per unit produced D. market value per share of outstanding stock E. total sales 3. Which one of the following is the financial statement that shows the accounting value of a firm’s equity as of a particular date? A. income statement B. creditor’s statement C. balance sheet D. statement of cash flows E. dividend statement 4
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CHAPTER 6: EFFICIENT DIVERSIFICATION 1.E(rP) = (0.5 16%) + (0.4 10%) + (0.10 6%) = 12.6% 2.a.The mean return should be less than the value computed in the spreadsheet. The fund’s return is 5% lower in a recession‚ but only 3% higher in a boom. The variance of returns should be greater than the value in the spreadsheet‚ reflecting the greater dispersion of outcomes in the three scenarios. b.Calculation of mean return and variance for the stock fund: (A) (B) (C) (D) (E) (F) (G) Scenario Probability
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