Theaverage expected inflation rate. Expected Inflation Rate: The expected inflation rate is the rate at which the price is expected to increase over the time, which results in fall of the purchasing value. Nominal Rate of Interest: The nominal rate of interest is the annual rate which is charged on the securities. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Question

Crenshaw, Incorporated, is considering the purchase of a $367,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $67,000 in five years. The computer will replace five office employees whose combined annual salaries are $112,000. The machine will also immediately lower the firm's required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 15 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV Answer is complete but not entirely correct. S 103,141.80

Answer 1

Question

Chapter 6, Problem 19P

a.

Summary Introduction

To determine: Theaverage expected inflation rate.

Expected Inflation Rate:

The expected inflation rate is the rate at which the price is expected to increase over the time, which results in fall of the purchasing value.

Nominal Rate of Interest:

The nominal rate of interest is the annual rate which is charged on the securities. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The average nominal interest rate.

c.

Summary Introduction

To determine: The interest rate in January 1981 on the bonds that has its maturity in 1,2, 5, 10 and 20 years and draw a yield curve on these data.

d.

Summary Introduction

To explain: The general economic conditions that can lead to an upward sloping yield curve.

e.

Summary Introduction

To determine: The shape of the yield curve in the given situation and the factors affecting the curve.

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Crenshaw, Incorporated, is considering the purchase of a $367,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $67,000 in five years. The computer will replace five office employees whose combined annual salaries are $112,000. The machine will also immediately lower the firm's required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 15 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV Answer is complete but not entirely correct. S 103,141.80

Your firm is contemplating the purchase of a new $610,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $66,000 at the end of that time. You will save $240,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $81,000 (this is a one-time reduction). If the tax rate is 21 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR %

QUESTION 1 Examine the information provided below and answer the following question. (10 MARKS) The hockey stick model of start-up financing, illustrated by the diagram below, has received a lot of attention in the entrepreneurial finance literature (Cumming & Johan, 2013; Kaplan & Strömberg, 2014; Gompers & Lerner, 2020). The model is often used to describe the typical funding and growth trajectory of many startups. The model emphasizes three main stages, each of which reflects a different phase of growth, risk, and funding expectations. Entrepreneur, 3 F's Debt(banks & microfinance) Research Business angels/Angel Venture funds/Venture capitalists Merger, Acquisition Grants investors PO Public market Growth (revenue) Break even point Pide 1st round Expansion 2nd round 3rd round Research commercial idea Pre-seed Initial concept Seed Early Expansion Financial stage Late IPO Inception and prototype Figure 1. The hockey stick model of start-up financing (Lasrado & Lugmayr, 2013) REQUIRED:…

Answer 2

Question

Chapter 6, Problem 19P

a.

Summary Introduction

To determine: Theaverage expected inflation rate.

Expected Inflation Rate:

The expected inflation rate is the rate at which the price is expected to increase over the time, which results in fall of the purchasing value.

Nominal Rate of Interest:

The nominal rate of interest is the annual rate which is charged on the securities. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The average nominal interest rate.

c.

Summary Introduction

To determine: The interest rate in January 1981 on the bonds that has its maturity in 1,2, 5, 10 and 20 years and draw a yield curve on these data.

d.

Summary Introduction

To explain: The general economic conditions that can lead to an upward sloping yield curve.

e.

Summary Introduction

To determine: The shape of the yield curve in the given situation and the factors affecting the curve.

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Answer 3

Question

Chapter 6, Problem 19P

a.

Summary Introduction

To determine: Theaverage expected inflation rate.

Expected Inflation Rate:

The expected inflation rate is the rate at which the price is expected to increase over the time, which results in fall of the purchasing value.

Nominal Rate of Interest:

The nominal rate of interest is the annual rate which is charged on the securities. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The average nominal interest rate.

c.

Summary Introduction

To determine: The interest rate in January 1981 on the bonds that has its maturity in 1,2, 5, 10 and 20 years and draw a yield curve on these data.

d.

Summary Introduction

To explain: The general economic conditions that can lead to an upward sloping yield curve.

e.

Summary Introduction

To determine: The shape of the yield curve in the given situation and the factors affecting the curve.

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Answer 4

Question

Chapter 6, Problem 19P

a.

Summary Introduction

To determine: Theaverage expected inflation rate.

Expected Inflation Rate:

The expected inflation rate is the rate at which the price is expected to increase over the time, which results in fall of the purchasing value.

Nominal Rate of Interest:

The nominal rate of interest is the annual rate which is charged on the securities. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The average nominal interest rate.

c.

Summary Introduction

To determine: The interest rate in January 1981 on the bonds that has its maturity in 1,2, 5, 10 and 20 years and draw a yield curve on these data.

d.

Summary Introduction

To explain: The general economic conditions that can lead to an upward sloping yield curve.

e.

Summary Introduction

To determine: The shape of the yield curve in the given situation and the factors affecting the curve.

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Answer 5

Chapter 6, Problem 19P

a.

Summary Introduction

To determine: Theaverage expected inflation rate.

Expected Inflation Rate:

The expected inflation rate is the rate at which the price is expected to increase over the time, which results in fall of the purchasing value.

Nominal Rate of Interest:

The nominal rate of interest is the annual rate which is charged on the securities. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

b.

Summary Introduction

To determine: The average nominal interest rate.

c.

Summary Introduction

To determine: The interest rate in January 1981 on the bonds that has its maturity in 1,2, 5, 10 and 20 years and draw a yield curve on these data.

d.

Summary Introduction

To explain: The general economic conditions that can lead to an upward sloping yield curve.

e.

Summary Introduction

To determine: The shape of the yield curve in the given situation and the factors affecting the curve.

Answer 6

Chapter 6, Problem 19P

a.

Summary Introduction

To determine: Theaverage expected inflation rate.

Expected Inflation Rate:

The expected inflation rate is the rate at which the price is expected to increase over the time, which results in fall of the purchasing value.

Nominal Rate of Interest:

The nominal rate of interest is the annual rate which is charged on the securities. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 7

Chapter 6, Problem 19P

a.

Summary Introduction

To determine: Theaverage expected inflation rate.

Expected Inflation Rate:

The expected inflation rate is the rate at which the price is expected to increase over the time, which results in fall of the purchasing value.

Nominal Rate of Interest:

The nominal rate of interest is the annual rate which is charged on the securities. The nominal annual rate is converted into effective annual rate to compare the rates of two different banks.

Answer 8

b.

Summary Introduction

To determine: The average nominal interest rate.

Answer 9

b.

Summary Introduction

To determine: The average nominal interest rate.

Answer 10

c.

Summary Introduction

To determine: The interest rate in January 1981 on the bonds that has its maturity in 1,2, 5, 10 and 20 years and draw a yield curve on these data.

Answer 11

c.

Summary Introduction

To determine: The interest rate in January 1981 on the bonds that has its maturity in 1,2, 5, 10 and 20 years and draw a yield curve on these data.

Answer 12

d.

Summary Introduction

To explain: The general economic conditions that can lead to an upward sloping yield curve.

Answer 13

d.

Summary Introduction

To explain: The general economic conditions that can lead to an upward sloping yield curve.

Answer 14

e.

Summary Introduction

To determine: The shape of the yield curve in the given situation and the factors affecting the curve.

Answer 15

e.

Summary Introduction

To determine: The shape of the yield curve in the given situation and the factors affecting the curve.

Answer 16

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Answer 27

Ch. 6 - Prob. 1Q Ch. 6 - Prob. 2Q Ch. 6 - Suppose you believe that the economy is just...Ch. 6 - Prob. 4Q Ch. 6 - Suppose a new process was developed that could be...Ch. 6 - Prob. 6Q Ch. 6 - Prob. 7Q Ch. 6 - Suppose interest rates on Treasury bonds rose from...Ch. 6 - Prob. 9Q Ch. 6 - Suppose you have noticed that the slope of the...

Solution Summary: The author calculates the average expected inflation rate by subtracting 0.41 for the sum of the rate of all years and 5.

Concept explainers

To determine: The average nominal interest rate.

To determine: The interest rate in January 1981 on the bonds that has its maturity in 1,2, 5, 10 and 20 years and draw a yield curve on these data.

To explain: The general economic conditions that can lead to an upward sloping yield curve.

To determine: The shape of the yield curve in the given situation and the factors affecting the curve.

Chapter 6 Solutions