Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Chapter 11, Problem 3P
Summary Introduction
To calculate: The distinction in the PV (present values) of the settlement at 4% and 8%.
Introduction:
Present value:
The current value of an investment or an asset is termed as its present value. It is calculated by discounting the
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A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $250,000 a year for the next 20 years.
The attorney for the plaintiff's estate argues that the lost income should be discounted back to the present at 4 percent. The lawyer for
the defendant's insurance company argues for a discount rate of 9 percent.
What is the difference between the present value of the settlement at 4 percent and 9 percent? Compute each one separately. Use
Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not
round intermediate calculations. Round your answers to 2 decimal places.)
PV at 4% rate
PV at 9% rate
Difference
$
Present Value
0.00
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Marty has been offered an injury settlement of
​$10,000 payable in 3 years.Â
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If​ Marty's opportunity cost is 5​%, what is the present value of the injury​ settlement?
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If​ Marty's opportunity cost is
8​%, what is the present value of the injury​ settlement?
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If​ Marty's opportunity cost is
12​%, what is the present value of the injury​ settlement?
Matthew is considering several possible compensation alternatives for services he has provided as a consultant:
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Option A:Â Matthew could receive $8,000 today.
Option B:Â Matthew could receive $2,500 at the end of each of the next four years.
Option C:Â Matthew could receive $12,000 five years from now.Â
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Required:
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 Calculate the present value for each option assuming that Matthew can earn 7 percent on any investment funds.
Which option results in the greatest financial benefit to Matthew?
If Matthew earns 10 percent, will that change your answer to # 2 above? Please explain.
Chapter 11 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 11 - Why do we use the overall cost of capital for...Ch. 11 - How does the cost of a source of capital relate to...Ch. 11 - Prob. 3DQCh. 11 - Why is the cost of debt less than the cost of...Ch. 11 - What are the two sources of equity (ownership)...Ch. 11 - Explain why retained earnings have an associated...Ch. 11 - Why is the cost of retained earnings the...Ch. 11 - Why is the cost of issuing new common stock Kn...Ch. 11 - How are the weights determined to arrive at the...Ch. 11 - Explain the traditional, U-shaped approach to the...
Ch. 11 - Prob. 11DQCh. 11 - What effect would inflation have on a company’s...Ch. 11 - What is the concept of marginal cost of capital?...Ch. 11 - In March 2010, Hertz Pain Relievers bought a...Ch. 11 - Speedy Delivery Systems can buy a piece of...Ch. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Calculate the aftertax cost of debt under each of...Ch. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Airborne Airlines Inc. has a $1,000 par value bond...Ch. 11 - Russell Container Corporation has a $1,000 par...Ch. 11 - Prob. 11PCh. 11 - KeySpan Corp. is planning to issue debt that will...Ch. 11 - Medco Corporation can sell preferred stock for $90...Ch. 11 - Wallace Container Company issued $100 par value...Ch. 11 - Prob. 15PCh. 11 - Murray Motor Company wants you to calculate its...Ch. 11 - Compute KeandKn under the following...Ch. 11 - Business has been good for Keystone Control...Ch. 11 - Prob. 19PCh. 11 - Evans Technology has the following capital...Ch. 11 - Sauer Milk Inc. wants to determine the minimum...Ch. 11 - Given the following information, calculate the...Ch. 11 - Prob. 23PCh. 11 - Brook's Window Shields Inc. is trying to calculate...Ch. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Delta Corporation has the following capital...Ch. 11 - The Nolan Corporation finds it is necessary to...Ch. 11 - The McGee Corporation finds it is necessary to...Ch. 11 - Eaton Electronic Company’s treasurer uses both...Ch. 11 - Compute the $ change in “Total Assets� over...Ch. 11 - Do the same computation for “Stockholders’...Ch. 11 - Do the same computation for “Long-Term Debt.�Ch. 11 - Prob. 5WE
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