Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
Question
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Chapter 2, Problem 13PS

a.

Summary Introduction

To determine: The one year interest rate.

a.

Expert Solution
Check Mark

Answer to Problem 13PS

The one year interest rate is 10.50%.

Explanation of Solution

Determine the one year interest rate

OneYearInterestRate=[(1DiscountFactor)1]=[(10.905)1]=[1.1049721]=0.104972or10.50%

Therefore the one year interest rate is 10.50%.

b.

Summary Introduction

To determine: The two year discount factor.

b.

Expert Solution
Check Mark

Answer to Problem 13PS

The two year discount factor is 0.8190.

Explanation of Solution

Determine the two year discount factor

TwoYearDiscountFactor=[1(1+DiscountRate)2]=[1(1+10.50%)2]=[11.221025]=0.818984or0.8190

Therefore the two year discount factor is 0.8190.

c.

Summary Introduction

To determine: The two year annuity factor.

c.

Expert Solution
Check Mark

Answer to Problem 13PS

The two year annuity factor is 1.7240.

Explanation of Solution

Determine the two year annuity factor

TwoYearAnnuityFactor=[DiscountFactorYear1+DiscountFactorYear2]=[0.905+0.818984]=1.723984or1.7240

Therefore the two year annuity factor is 1.7240.

d.

Summary Introduction

To determine: The three year annuity factor.

d.

Expert Solution
Check Mark

Answer to Problem 13PS

The three year annuity factor is 2.4650.

Explanation of Solution

Determine the three year annuity factor

ThreeYearAnnuityFactor=[PVYear3PVActual]=[$24.65$10]=2.4650

Therefore the three year annuity factor is 2.4650.

e.

Summary Introduction

To determine: The three year discount factor.

e.

Expert Solution
Check Mark

Answer to Problem 13PS

The three year discount factor is 0.7410.

Explanation of Solution

Determine the three year discount factor

ThreeYearDiscountFactor=[DiscountFactorYear2DiscountFactorYear3]=[2.46501.7240]=0.741016or0.7410

Therefore the three year discount factor is 0.7410.

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Chapter 2 Solutions

Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)

Ch. 2 - Prob. 3PSCh. 2 - Prob. 4PSCh. 2 - Opportunity cost of capital Which of the following...Ch. 2 - Perpetuities An investment costs 1,548 and pays...Ch. 2 - Growing perpetuities A common stock will pay a...Ch. 2 - Prob. 8PSCh. 2 - Present values What is the PV of 100 received in:...Ch. 2 - Continuous compounding The continuously compounded...Ch. 2 - Compounding intervals You are quoted an interest...Ch. 2 - Future values and annuities a. The cost of a new...Ch. 2 - Prob. 13PSCh. 2 - Present values A factory costs 800,000. You reckon...Ch. 2 - Present values A machine costs 380,000 and is...Ch. 2 - Opportunity cost of capital Explain why we refer...Ch. 2 - Present values A factory costs 400,000. It will...Ch. 2 - Present values and opportunity cost of capital...Ch. 2 - Prob. 19PSCh. 2 - Prob. 20PSCh. 2 - Annuities David and Helen Zhang are saving to buy...Ch. 2 - Annuities Kangaroo Autos is offering free credit...Ch. 2 - Present values Recalculate the NPV of the office...Ch. 2 - Prob. 24PSCh. 2 - Prob. 25PSCh. 2 - Continuous compounding How much will you have at...Ch. 2 - Perpetuities You have just read an advertisement...Ch. 2 - Compounding intervals Which would you prefer? a....Ch. 2 - Compounding intervals A leasing contract calls for...Ch. 2 - Annuities Several years ago, The Wall Street...Ch. 2 - Prob. 31PSCh. 2 - Prob. 32PSCh. 2 - Prob. 33PSCh. 2 - Prob. 34PSCh. 2 - Prob. 35PSCh. 2 - Amortizing loans Suppose that you take out a...Ch. 2 - Prob. 37PSCh. 2 - Annuities Use Excel to construct your own set of...Ch. 2 - Declining perpetuities and annuities You own an...
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