FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
10th Edition
ISBN: 9781337910972
Author: Brigham
Publisher: CENGAGE L
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Question
Chapter 5, Problem 1Q
Summary Introduction
To explain: The
Introduction:
Opportunity cost: The opportunity cost refers to the cost which an alternative investment of the similar risk had given. With the help of opportunity cost, the investor can choose the better lender as the best
Time-value of money analysis: The time-value of money analysis refers to that analysis which is done to understand the change in value of money with time. With the help of this analysis, it is determined that whether the value of money is increased or decreased with time. This analysis is used in financial and investment decisions and is very helpful for financial users and investors.
Expert Solution & Answer
Answer to Problem 1Q
- The opportunity cost refers to that cost which is left out to choose an alternative of the similar type and risk. If the risks associated with two options are the same and the individual has to choose one, the cost associated with that thing which is left is the opportunity cost.
- That is why opportunity cost is also called as the alternative cost.
- The opportunity cost plays an important role in the decisions of the user and in many other management decisions.
- The time value of money analysis is used by the investors. With the help of opportunity cost used in the time value of money analysis, the investors can choose the lenders which will give the best rate of return. When that option is chosen which gives the best rate of return, the future value of money is increased.
- The opportunity cost is shown for every
cash inflows andcash outflows on a time line. - In all the given situations, the interest rate is utilized as the single number.
Explanation of Solution
- The opportunity cost is a very important factor in making
financial and management decisions. - The time value of money analysis is done with the help of opportunity costs, by which the investors are able to make better decisions that helps them in earning more value of money in future.
- The time line is the visual representation of the time value of money analysis. The time line represents the time periods and the value of cash flows for that period with the interest rate.
- The single number which is used is the rate of interest, as the rate of interest is an important factor in this analysis.
Conclusion
Thus, the opportunity cost is the alternative cost, it is an important factor in time value of money analysis, and the interest rate is the single number used.
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Chapter 5 Solutions
FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP
Ch. 5 - Prob. 1QCh. 5 - Explain whether the following statement is true or...Ch. 5 - If a firms earnings per share grew from 1 to 2...Ch. 5 - Would you rather have a savings account that pays...Ch. 5 - Prob. 5QCh. 5 - Prob. 6QCh. 5 - Banks and other lenders are required to disclose a...Ch. 5 - Prob. 8QCh. 5 - FUTURE VALUE If you deposit 2,000 in a bank...Ch. 5 - PRESENT VALUE What is the present value of a...
Ch. 5 - FINDING THE REQUIRED INTEREST RATE Your parents...Ch. 5 - TIME FOR A LUMP SUM TO DOUBLE If you deposit money...Ch. 5 - TIME TO REACH A FINANCIAL GOAL You have 33,556.25...Ch. 5 - Prob. 6PCh. 5 - PRESENT AND FUTURE VALUES OF A CASH FLOW STREAM An...Ch. 5 - LOAN AMORTIZATION AND EAR You want to buy a car,...Ch. 5 - Prob. 9PCh. 5 - Prob. 10PCh. 5 - GROWTH RATES Sawyer Corporations 2018 sales were 5...Ch. 5 - EFFECTIVE RATE OF INTEREST Find the interest rates...Ch. 5 - Prob. 13PCh. 5 - FUTURE VALUE OF AN ANNUITY Find the future values...Ch. 5 - PRESENT VALUE OF AN ANNUITY Find the present...Ch. 5 - Prob. 16PCh. 5 - EFFECTIVE INTEREST RATE You borrow 230,000; the...Ch. 5 - Prob. 18PCh. 5 - FUTURE VALUE OF AN ANNUITY Your client is 26 years...Ch. 5 - PV OF A CASH FLOW STREAM A rookie quarterback is...Ch. 5 - EVALUATING LUMP SUMS AND ANNUITIES Kristina just...Ch. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - PRESENT VALUE FOR VARIOUS DISCOUNTING PERIODS Find...Ch. 5 - Prob. 25PCh. 5 - PV AND LOAN ELIGIBILITY You have saved 4,000 for a...Ch. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 - REQUIRED LUMP SUM PAYMENT Starting next year, you...Ch. 5 - REACHING A FINANCIAL GOAL Six years from today you...Ch. 5 - FV OF UNEVEN CASH FLOW You want to buy a house...Ch. 5 - AMORTIZATION SCHEDULE a. Set up an amortization...Ch. 5 - AMORTIZATION SCHEDULE WITH A BALLOON PAYMENT You...Ch. 5 - Prob. 36PCh. 5 - PAYING OFF CREDIT CARDS Simon recently received a...Ch. 5 - Prob. 38PCh. 5 - Prob. 39PCh. 5 - Prob. 40PCh. 5 - Prob. 41SPCh. 5 - Prob. 42IC
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