Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 4, Problem 28QP
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You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in twenty-six equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest.
Calculate the present value of the payments you will receive. Show your calculations using formulas in your paper or provide how to do the calculations in Excel.
Explain why there is a difference between the present value of the Strayer lottery jackpot and the future value of the twenty-six annual payments based on your calculations and the information provided.
You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in twenty-six equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest.
Calculate the present value of the payments you will receive. Show your calculations using formulas in your paper or in an attached spreadsheet file.
The approach uses a weighted average cost of capital that is unique to a particular project while determining the appropriate discount rate.
Chapter 4 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4 - Prob. 1CQCh. 4 - Prob. 2CQCh. 4 - Prob. 3CQCh. 4 - Prob. 4CQCh. 4 - Time Value On subsidized Stafford loans, a common...Ch. 4 - Prob. 6CQCh. 4 - Prob. 7CQCh. 4 - Prob. 8CQCh. 4 - Prob. 9CQCh. 4 - Prob. 10CQ
Ch. 4 - Simple Interest versus Compound Interest First...Ch. 4 - Prob. 2QPCh. 4 - Prob. 3QPCh. 4 - Prob. 4QPCh. 4 - Prob. 5QPCh. 4 - Prob. 6QPCh. 4 - Calculating Present Values Imprudential, Inc., has...Ch. 4 - Calculating Rates of Return Although appealing to...Ch. 4 - Perpetuities An investor purchasing a British...Ch. 4 - Prob. 10QPCh. 4 - Prob. 11QPCh. 4 - Prob. 12QPCh. 4 - Calculating Annuity Present Value An investment...Ch. 4 - Calculating Perpetuity Values The Perpetual Life...Ch. 4 - Calculating EAR Find the EAR in each of the...Ch. 4 - Calculating APR Find the APR, in each of the...Ch. 4 - Calculating EAR First National Bank charges 10.3...Ch. 4 - Interest Rates Well-known financial writer Andrew...Ch. 4 - Calculating Number of Periods One of your...Ch. 4 - Prob. 20QPCh. 4 - Prob. 21QPCh. 4 - Simple Interest versus Compound Interest First...Ch. 4 - Calculating Annuities You are planning to save for...Ch. 4 - Prob. 24QPCh. 4 - Prob. 25QPCh. 4 - Prob. 26QPCh. 4 - Prob. 27QPCh. 4 - Annuity Present Values What is the present value...Ch. 4 - Annuity Present Values What is the value today of...Ch. 4 - Balloon Payments Audrey Sanborn has just arranged...Ch. 4 - Prob. 31QPCh. 4 - Prob. 32QPCh. 4 - Growing Annuity Southern California Publishing...Ch. 4 - Growing Annuity Your job pays you only once a year...Ch. 4 - Prob. 35QPCh. 4 - Prob. 36QPCh. 4 - Prob. 37QPCh. 4 - Calculating Loan Payments You need a 30-year,...Ch. 4 - Prob. 39QPCh. 4 - Calculating Present Values You just won the TVM...Ch. 4 - Prob. 41QPCh. 4 - Prob. 42QPCh. 4 - Prob. 43QPCh. 4 - Prob. 44QPCh. 4 - Prob. 45QPCh. 4 - Prob. 46QPCh. 4 - Prob. 47QPCh. 4 - Prob. 48QPCh. 4 - Prob. 49QPCh. 4 - Prob. 50QPCh. 4 - Calculating Annuities Due You want to lease a set...Ch. 4 - Prob. 52QPCh. 4 - Prob. 53QPCh. 4 - Prob. 54QPCh. 4 - Prob. 55QPCh. 4 - Prob. 56QPCh. 4 - Prob. 57QPCh. 4 - Prob. 58QPCh. 4 - Prob. 59QPCh. 4 - Prob. 60QPCh. 4 - Prob. 61QPCh. 4 - Prob. 62QPCh. 4 - Prob. 63QPCh. 4 - Prob. 64QPCh. 4 - Calculating the Number of Periods Your Christmas...Ch. 4 - Prob. 66QPCh. 4 - Prob. 67QPCh. 4 - Prob. 68QPCh. 4 - Prob. 69QPCh. 4 - Perpetual Cash Flows What is the value of an...Ch. 4 - Prob. 71QPCh. 4 - Prob. 72QPCh. 4 - Prob. 73QPCh. 4 - Prob. 74QPCh. 4 - Rule or 69.3 A corollary to the Rule of 72 is the...Ch. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - Prob. 4MCCh. 4 - Prob. 5MCCh. 4 - Prob. 6MC
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- An all-equity firm faces a risk-free rate of 4%, a beta of 2, and a market risk premium of 6%. What is its cost of capital? Multiple choice question. 18% 12% 14% 16%arrow_forwardcreated or destroyed. uses the weighted average cost of capital to determine if value is beingarrow_forwardUnder the subjective approach for project evaluation, all proposed projects are placed into several Blank______ categories. Multiple choice question. risk cost revenue returnarrow_forward
- Using the WACC as the discount rate for future cash flows is appropriate only when the proposed investment is Blank______ the firm's existing activities. Multiple choice question. riskier than different from less risky than similar toarrow_forwardSuppose a project has a cost of $20 million and expected cash flows of 10 million per year for two years. If the WACC is 10%, what is the NPV of this project? Multiple choice question. $17.4 million –$2.6 million $2.6 million 0 millionarrow_forwardAlpha Corporation consists of two divisions, X and Y. Division X is riskier than Division Y. If Alpha Corporation uses the firm's overall weighted average cost of capital to evaluate both divisions' projects, which division(s) will tend to be awarded greater funds for investment? Multiple choice question. Only division X Neither division Both divisions Only division Yarrow_forward
- Alpha Corporation consists of two divisions, X and Y. Division X is riskier than Division Y. If Alpha Corporation uses the firm's overall weighted average cost of capital to evaluate both divisions' projects, which division(s) will tend to be awarded greater funds for investment? Multiple choice question. Only division X Neither division Both divisions Only division Yarrow_forwardWhich of the following is true of the dividends paid to common stockholders? Multiple choice question. All companies are legally required to pay dividends when they earn a net income. All companies are legally required to pay fixed dividends regardless of their financial performance. Dividends paid are not tax deductible. Unlike interest payments, dividends paid are tax-deductible at the corporate level and are tax-free at the personal level.arrow_forwardIf a firm issues no debt, its weighted average cost of capital will equal Blank______. Multiple choice question. its cost of debt half the sum of the cost of debt and equity its dividend yield its cost of equityarrow_forward
- If a firm issues no debt, its weighted average cost of capital will equal Blank______. Multiple choice question. its cost of debt half the sum of the cost of debt and equity its dividend yield its cost of equityarrow_forwardWhile computing the weighted average cost of capital, the is the better alternative when the market value is not readily available.arrow_forwardThe discount rate for firm's projects equals the cost of capital for the firm as a whole when Blank______. Multiple choice question. all projects have the same risk as the firm the average risk of the firm's projects is constant all projects have normally distributed returnsarrow_forward
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