Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134475561
Author: Jonathan Berk, Peter DeMarzo, Jarrad Harford
Publisher: PEARSON
Question
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Chapter 4, Problem 1CC
Summary Introduction

Cash flows:

Inflow and outflow movement of cash is known as Cash flows. Cash flows are the expected cash to be generated by an asset, investment or business. There are two types of cash flows, namely cash inflow and cash outflow. The payments refer to cash outflows and receipts refer to cash inflows.

Present Value:

Present value is that value of money which measures the worth of a future amount in today’s value adjusted for interest and inflation. It is used in finance for the valuation of future value, stock and bond pricing.

To Explain:

The calculation of the present value of cash flow stream.

Expert Solution & Answer
Check Mark

Answer to Problem 1CC

There is a formula which is used to calculate the present value of cash flow stream and that,

Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 4, Problem 1CC , additional homework tip  1

Where,

  • Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 4, Problem 1CC , additional homework tip  2 is the present value of the cash flow stream.
  • Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 4, Problem 1CC , additional homework tip  3 is the cash flow which occurs at the end of the year t1.
  • Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 4, Problem 1CC , additional homework tip  4 is the discount rate.
  • Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 4, Problem 1CC , additional homework tip  5 is the year, which ranges from 0 to n.
  • Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series), Chapter 4, Problem 1CC , additional homework tip  6 is the last year in which a cash flow occurs.

Explanation of Solution

  • Cash flow is the value of the various inflows and outflows. Some investments have a specific period of time or some are for the perpetuity basis.
  • For the calculation of present value of various cash flows, it is required to know about the components like, the total future cash flows from the investment, interest rate at which interest amount will be calculated and time period.
  • Discount rate is the rate which prevails in the open market at which the future values are discounted to get the value as on today.
Conclusion

The calculation of the present value depends upon the various factors (cash flow, discount rate, and time period).

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Chapter 4 Solutions

Fundamentals of Corporate Finance (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)

Ch. 4 - Prob. 11CCCh. 4 - Whencashflowsoccur at anon-annual interval, what...Ch. 4 - What is the intuition behind the fact that the...Ch. 4 - What must be true about a cash flow stream in...Ch. 4 - Prob. 3CTCh. 4 - Prob. 4CTCh. 4 - Prob. 5CTCh. 4 - Prob. 6CTCh. 4 - What must be true about the growth rate in order...Ch. 4 - In what types of situations would it be useful to...Ch. 4 - Prob. 1DCCh. 4 - Prob. 2DCCh. 4 - Prob. 3DCCh. 4 - Calculate the present value of the salary...Ch. 4 - Prob. 5DCCh. 4 - Prob. 1PCh. 4 - What is the present value of the following set of...Ch. 4 - You want to borrow $10,000. You figure that you...Ch. 4 - Prob. 4PCh. 4 - You have just taken out a five-year loan from a...Ch. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Prob. 8PCh. 4 - Prob. 9PCh. 4 - Prob. 10PCh. 4 - 11. Assume you can earn 9% per year on your...Ch. 4 - Prob. 12PCh. 4 - Prob. 13PCh. 4 - 14. The British government has a consol bond...Ch. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - 19. Your grandmother has been putting $1000 into a...Ch. 4 - 20. Assume that your parents wanted to have...Ch. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - 23. Assume that Social Security promises you...Ch. 4 - 24. When Alex Rodriguez moved to the Texas...Ch. 4 - Prob. 25PCh. 4 - A rich relative has bequeathed you a growing...Ch. 4 - Prob. 27PCh. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - 30. A rich aunt has promised you $5000 one year...Ch. 4 - Prob. 31PCh. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - 34. You have decided to buy a perpetual bond. The...Ch. 4 - Prob. 35PCh. 4 - 36. You are thinking about buying a piece oi art...Ch. 4 - 35. You are thinking of purchasing a house. The...Ch. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - 40. A local bank is running the following...Ch. 4 - Prob. 41PCh. 4 - Prob. 42PCh. 4 - 43. Suppose you currently have $5000 in your...Ch. 4 - 44. Your firm spends $5000 every month on printing...Ch. 4 - 45. You are looking to buy a car and can afford to...Ch. 4 - Prob. 46PCh. 4 - Prob. 47PCh. 4 - Prob. 48P
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