Corporate Finance: A Focused Approach (mindtap Course List)
7th Edition
ISBN: 9781337909747
Author: Michael C. Ehrhardt, Eugene F. Brigham
Publisher: South-Western College Pub
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Chapter 4, Problem 7MC
Summary Introduction
To Determine: The present value of cash flows.
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Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank's evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses time value of money analysis. See how you would do by answering the following questions.
Draw time lines for: (a) a $2000 lump sum cash flow at the end of year 4, (b) an ordinary annuity of $1000 per year for 5 years, and (c) an uneven cash flow stream of -$450, $1000, $650, $850 and $500 at the end of years 0 through 4.
Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank's evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses time value of money analysis. See how you would do by answering the following questions.
Draw time lines for (a) a $2000 lump sum cash flow at the end of year 4, (b) an ordinary annuity of $1000 per year for 5 years, and (c) an uneven cash flow stream of -$450, $1000, $650, $850 and $500 at the end of years 0 through 4.
What is the future value of an initial $1000 after 5 years if it is invested in an account paying 5% annual interest?
What is the present value of $1000 to be received in 4 years if the appropriate interest rate is 5%?
We sometimes need to find out how long it will take a sum of money (or anything else) to grow to some specified amount. For example, if a company's sales for 2020 is $1000 and expected to grow…
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?
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
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