Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 4, Problem 7MC
Summary Introduction
To Determine: The
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Assume that you are nearing graduation and have applied for a job at a prestigious com-
pany. The company's evaluation process requires you to take an examination that covers
several financial analysis techniques. The first section of the test addresses discounted
cash flow analysis. See how you would do by answering the following questions.
a. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2, (2) an or-
dinary annuity of $100 per year for 3 years, and (3) an uneven cash flow stream of
-$50, $100, $75, and $50 at the end of Years 0 through 3.
b. (1) What's the future value of an initial $100 after 3 years if it is invested in an ac-
count paying 10% annual interest?
(2) What's the present value of $100 to be received in 3 years if the appropriate inter-
est rate is 10%?
c. We sometimes need to find out how long it will take a sum of money (or something
else, such as earnings, population, or prices) to grow to some specified amount. For
example, if a company's…
A bank is considering offering a loan of
$100,000 to a client. If the loan is not offered,
then the bank invests the $100,000 receives a
sure payoff from the investment of $200 (i.e.,
receives $100,200 at the end of the year).
Prior to a decision of whether or not to offer
the loan, the bank can run a credit analysis on
the client that returns one of two possible
predictions: (1) the client will default on the
loan in which case the bank would lose
$100,000, (2) the client will pay back the loan
with interest in which case the bank receives a
payoff of $6,000 (i.e., receives $106,000 at the
end of the year). The probability that the
credit analysis will return the first prediction
(client defaults) is 1%. What is the EVPI?
In the provided scenario, you address the time value of money also known as discounted cash flow analysis. This type of analysis is crucial to being able to viably analyze financial statements. The start - up firm you founded is trying to save $10, 000 in order to buy a parcel of land for a proposed small warehouse expansion. In order to do so, your finance manager is authorized to make deposits of S 1250 per year into the company account that is paying 12% annual interest. The last deposit will be less than $1250 if less is needed to reach $10,000. How many years will it take to reach the $10,000 goal and how large will the last deposit be? Show your work
Chapter 4 Solutions
Corporate Finance: A Focused Approach (mindtap Course List)
Ch. 4 - Prob. 1QCh. 4 - Prob. 2QCh. 4 - An annuity is defined as a series of payments of a...Ch. 4 - If a firms earnings per share grew from 1 to 2...Ch. 4 - Prob. 5QCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5P
Ch. 4 - Prob. 6PCh. 4 - An investment will pay 100 at the end of each of...Ch. 4 - You want to buy a car, and a local bank will lend...Ch. 4 - Find the following values, using the equations,...Ch. 4 - Prob. 10PCh. 4 - Prob. 11PCh. 4 - Find the future value of the following annuities....Ch. 4 - Prob. 13PCh. 4 - Prob. 14PCh. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - Universal Bank pays 7% interest, compounded...Ch. 4 - Prob. 20PCh. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - A mortgage company offers to lend you 85,000; the...Ch. 4 - Prob. 24PCh. 4 - Prob. 25PCh. 4 - Prob. 26PCh. 4 - Prob. 27PCh. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - Your company is planning to borrow 1 million on a...Ch. 4 - It is now January 1. You plan to make a total of 5...Ch. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - You want to accumulate 1 million by your...Ch. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - Prob. 4MCCh. 4 - Prob. 5MCCh. 4 - Prob. 6MCCh. 4 - Prob. 7MCCh. 4 - Prob. 8MCCh. 4 - Prob. 9MCCh. 4 - Prob. 10MCCh. 4 - Prob. 11MCCh. 4 - Prob. 12MCCh. 4 - Prob. 13MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- What is the excel function and formula for this question? Off-The-Books Investment Firm, LLC, has offered you an investment it says will return to you $20,000 in 2 years. To get in, you'll need to make a $10,000 deposit to their receivables account and promise not to tell anyone about it. What is the annual return on this investment?arrow_forwardAn investor has accumulated $4,450 and is looking for the best rate of return that can be earned over the next year. A bank savings account will pay 9%. A one-year bank certificate of deposit will pay 11%, but the minimum investment is $7,450. Required: a. Calculate the amount of return the investor would earn if the $4,450 were invested for one year at 9%. b. Calculate the net amount of return the investor would earn if $3,000 were borrowed at a cost of 19%, and then $7,450 were invested for one year at 11%. c. Calculate the net rate of return on the investment of $4,450 if the investor accepts the strategy of part b. Note: Round your answer to 2 decimal places. a. Amount of return b. Net amount of return c. Net rate of return %arrow_forwardAn investor has accumulated $6,800 and is looking for the best rate of return that can be earned over the next year. A bank savings account will pay 5%. A one-year bank certificate of deposit will pay 7%, but the minimum investment is $9,800. Required: Calculate the amount of return the investor would earn if the $6,800 were invested for one year at 5%. Calculate the net amount of return the investor would earn if $3,000 were borrowed at a cost of 15%, and then $9,800 were invested for one year at 7%. Calculate the net rate of return on the investment of $6,800 if the investor accepts the strategy of part b. Note: Round your answer to 2 decimal places.arrow_forward
- Can you please help me answer the term. No calculation needed. I need to review for my midterms. Thank youarrow_forwardPlease also construct a cash flow diagram, Thank you very mucharrow_forwardFor the following economic calculations, write the factors (multipliers) that should be used,in (i) using the parameter values, and in (ii) calculate the result by showing your computations. Write the results you find in the spaces left. (Use factors for your calculations.)EXAMPLE: If you deposit $ 100 to a bank account that earns 8% annual interest, how much money will you have in this account after five years?(i)(F/P, 8%, 5) (ii)146.93100 * (F/P, 8%, 5) = 100 * 1.4693 = 146.93 TLa. You plan to take a credit with $1500 installment size per year with an annual interest rate of 8% over six years from a bank. What is the amount of your current credit?(i) (ii)b. A bank is required to deposit money for four years with an interest rate 10%. The money deposited at the end of the first year is 6000 TL and the amount of money deposited in the next three years will be reduced by 500 TL every year. How much money will be in the bank at the end of the fourth year?(i) (ii)arrow_forward
- Write your answer on clean paper, show your solution clearly and readable, and then Box your final answer. Take note: Give what is asked and show your answer.arrow_forwardAssume that you have $10,000,000 in your bank account. You wish to withdraw $400,000 per year, at the end of each year, for the next 5 years, after which you wish to have $11,000,000 in the bank. What is the balance in your account after the 2nd year (after the withdrawal)? Hint: you will need first to solve for rate in Excel given all other parameters. Watch signs. Select one: a. $10,366,644 b. $10,600,000 c. $9,600,000 d. $10,488,912arrow_forwardPlease provide the steps to solving this problem using a financial calculator: You just opened a brokerage account, depositing $3,500. You expect the account to earn an interest rate of 9.652%. You also plan on depositing $4,500 at the end of years 5 through 10. What will be the value of the account at the end of 20 years, assuming you earn your expected rate of return?arrow_forward
- Use the present and future value tables provided in this week’s reading to solve the situations depicted below: 1. Bob’s Music Store is doing well in the area. He has some excess cash in the bank account and is looking at different alternatives that might bring more return than the meager rate his bank is offering. He currently receives 2% interest from his bank, which we will use to determine the net present value of each alternative. He has narrowed it down to two options: Alternative A: The first option is to upgrade and customize his computer system. The cost will be $3,000. He expects to save $1,800 per year in labor costs as a result of the additional automation. He also believes he will be able to sell any computer hardware for $500 at the end of the 3-year horizon he is looking at before having to upgrade once again. Alternative B: The second option is to expand his current inventory by offering a new line of guitars. The initial outlay of the expansion is $8,000. He expects…arrow_forwardUse the present and future value tables provided in this week’s reading to solve the situations depicted below: 1. Bob’s Music Store is doing well in the area. He has some excess cash in the bank account and is looking at different alternatives that might bring more return than the meager rate his bank is offering. He currently receives 2% interest from his bank, which we will use to determine the net present value of each alternative. He has narrowed it down to two options: Alternative A: The first option is to upgrade and customize his computer system. The cost will be $3,000. He expects to save $1,800 per year in labor costs as a result of the additional automation. He also believes he will be able to sell any computer hardware for $500 at the end of the 3-year horizon he is looking at before having to upgrade once again. Alternative B: The second option is to expand his current inventory by offering a new line of guitars. The initial outlay of the expansion is…arrow_forwardOne can solve for payments (PMT), periods (N), and interest rates (1) for annuities. The easiest way to solve for these variables is with a financial calculator or a spreadsheet. Quantitative Problem 1: You plan to deposit $2,100 per year for 4 years into a money market account with an annual return of 3%. You plan to make your first deposit one year from today. a. What amount will be in your account at the end of 4 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. Assume that your deposits will begin today. What amount will be in your account after 4 years? Do not round intermediate calculations. Round your answer to the nearest cent. $ Quantitative Problem 2: You and your wife are making plans for retirement. You plan on living 25 years after you retire and would like to have $95,000 annually on which to live. Your first withdrawal will be made one year after you retire and you anticipate that your retirement account will earn 12% annually. a.…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Responsibility Accounting| Responsibility Centers and Segments| US CMA Part 1| US CMA course; Master Budget and Responsibility Accounting-Intro to Managerial Accounting- Su. 2013-Prof. Gershberg; Author: Mera Skill; Rutgers Accounting Web;https://www.youtube.com/watch?v=SYQ4u1BP24g;License: Standard YouTube License, CC-BY