You are considering investing $ 2987500today in a project that will earn $ 337100 aftertax in its first year and continue growing eachyear for ever, increasing in line with pricesgenerally. Inflation is forecast to be 3.2% perannum, and your discount rate is 11.2 % perannum.a) Calculate the NPV of this project using realcash flowsb) Check that you get the same answer byvaluing the cash flows using the Gordongrowth model. If you get different answers,there may be a step missed.

The NPV using real cash flows can be calculated as follows : Calculations for above :

Answered: rst year and con CO rer, increasing in…

Business

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rst year and con CO rer, increasing in Inflation is fored ind d your discount Scoui

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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In the time diagram below, which of the following concepts is depicted? 0 PV $1 2 $1 3 $1 O Present value of an annuity due O Future value of an ordinary annuity Present value of an ordinary annuity Future value of an annuity due 4 $1
Calculating Real Rates of Return IfTreasury bills are currently paying 4.7 percent and the inflation rate is 1.9 percent, what is the approximate real rate of interest? The exact real rate?
Assume that the real rate of interest is 2.00 % and the inflation rate is 6.00% What is the value today (i.e. , in Year ) of receiving 12,895.00 exactly 12 years from today ?
If Po is the initial price of the security, P₁ is the price after you hold it for a year, and X represents a direct payment, an asset's rate of return is equal to: rate of return = (P₁ - Po) rate of return = (P₁ - Po) + X rate of return = (P₁-Po) / Po + XPo rate of return = (P₁ - Po)/Po + X
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Unbiased Expectations Theory Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3, and 4, respectively) are as follows 1R1=4.35%, E(2r1) =5.35%, E(3r1) =5.85%, E(4r1)=6.20% Using the unbiased expectations theory, what is the current (long-term) rate for four-year-maturity Treasury securities?
Calculating Present Value For each of the following, compute the present value: Present Value Years Interest Rate Future Value ? 17.9% $16, 832 ? 9.7% $ 48,318? 23.13% $886, 073? 35 21% $550, 164
) Giunn testa pot calplon diagrads =5%% compounded anmually the interest Rete l00 1,714.75 1,505 2,000 4 Find the 4) what i premut Worth OF guivelont annuity por the şradirnt ? the yrars
Qw.02. Compute trend percents for the following accounts using 2020 as the base year. For each of the three accounts, state whether the situation as revealed by the trend percents appears to be favourable or unfavourable Sales Cost of goods sold Accounts receivable Numerator: 2024: 2023: Numerator: 2024 $ 463,414 234,107 22,522 2024: 2023: 2022: 2021: 2020: Is the trend percent for Net Sales favourable or unfavourable? Numerator: I 1 1 1 Trend Percent for Net Sales: 2023 $ 306,897 155,099 17,861 1 1 1 I 1 2022 2021 $ 249,510 $ 175,095 128,255 89,348 10,226 17,042 Trend Percent for Cost of Goods Sold: Denominator: 2024: 2023: 2022: 2021: 2020: Is the trend percent for Cost of Goods Sold favourable or unfavourable? 7 Denominator: 7 1 Trend Percent for Accounts Receivable: Denominator: 2022: 2021: 2020: Is the trend percent for Accounts Receivable favourable or unfavourable? = E # = S U = E = = 2020 $ 129,700 64,850 8,871 Trend percent Trend percent Trend percent 1% %6 % % % % 196 196 56…
In an inflationary period, what is the difference between (a) inflated dollars and “then-current” future dollars, and (b) “then-current” future dollars and constant-value future dollars?
Complete the following using present value. (Use the Table provided.) (Do not round intermediate calculations. Round the "Rate used" to the nearest tenth percent. Round the "PV factor" to 4 decimal places and final answer to the nearest cent.) Amount desired at end of period 6,600 Length of time 10 years Rate 2% Compounded semiannually On PV Table 12.3 Period used 120 Rate used 0.2 % PV factor used 0.2400 $ PV of amount desired at end of period 1,584.08
If the compounding frequency is monthly and the discount factor=0.62026, what is the value of the corresponding annual interest rate? What is the corresponding continuous compounding annual interest rate if the discount factor remains at 0.62026?

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