Answered: is the process of calculating the…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 4MC: Suppose the free cash flow at Time 1 is expected to grow at a constant rate of gL forever. If gL <...

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4. Present value

Finding a present value is the reverse of finding a future value.

A. is the process of calculating the present value of a cash flow or a series of cash flows to be received in the future.

B. Which of the following investments that pay will $17,500 in 8 years will have a lower price today?

The security that earns an interest rate of 4.00%.

The security that earns an interest rate of 6.00%.

C. Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 5.40%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price?

An investment that matures in four years

An investment that matures in five years

D. Which of the following is true about present value calculations?

Other things remaining equal, the present value of a future cash flow increases if the investment time period increases.

Other things remaining equal, the present value of a future cash flow decreases if the investment time period increases.

*****Please answer the question in full the last person to answer this question gave the first solution and nothing else making me waste a question I more than likely need and this is very frustrating. Thanks*****

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