Homework Answers
This is not correct. Investment decisions by one individual does not influence the investment decision of another individual. It is possible that with the discount rate of 5% one individual is investing today. but we cannot expect the other individual to do the same when the discount rate is 7% or even when it is 5%. Investment decisions are taken in regard to expected return and preferences of investment which are different from individual to individual.
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Suppose that person1 has a discount rate of
(a) Suppose that Person 1 has a discount...
Suppose we have a 2-person world, with only Stephen and his friend LeBron. Suppose that Stephen...
Suppose we have a 2-person world, with only Stephen and his
friend LeBron. Suppose that Stephen can move 70 boxes or bake 28
cookies in an hour. Suppose that LeBron could move 16 boxes or bake
4 cookies in an hour. Is trade possible?
Choose one:A. No, trade isn’t possible, because
LeBron has an absolute advantage in both making cookies and moving
boxes.B. Yes, trade is possible. Stephen should move boxes while
LeBron makes cookies, because Stephen has a comparative...
In financial analysis, it is important to select an appropriate discount rate. A project's discount rate...
In financial analysis, it is important to select an appropriate discount rate. A project's discount rate must be high to compensate investors for the project's risk. The return that shareholders require from the company as a compensation for their investment risk is referred to as the cost of equity. Consider this case: Sunny Co. is a 100% equity-financed company (no debt or preferred stock); hence, its WACC equals its cost of common equity. Sunny Co.'s retained earnings will be sufficient...
2. Cannon Inc. has identified an investment project with the following cash flows. If the discount...
2. Cannon Inc. has identified an investment project with the following cash flows. If the discount rate is 8%, what is the future value of these cash flows in year 4? if the discount rate is 11%, what is the future value in year 4? Show your work. Year Cash Flow 1 $1,225 2 $1,345 3 $1,460 4 $1,590 Page 12 - Q + Cannon Inc. has identified an investment project with the following cash flows. If the discount rate...
1. if you receive $122 each 6 months for 1 year and the discount rate is...
1. if you receive $122 each 6 months for 1 year and the discount rate is 0.02, what is the present value? 2. If you receive $99 each quarter for 17 years and the discount rate is 0.05, what is the future value? 3. If the present value is $43.08 and the rate of return is 0.041, how much will you have in one year?
In financial analysis, it is important to select an appropriate discount rate. A project's discount rate...
In financial analysis, it is important to select an appropriate discount rate. A project's discount rate must be high to compensate investors for the project's risk. The return that shareholders require from the company as a compensation for their investment risk is referred to as the cost of equity. Consider this case: Weghorst Ltd is a 100% equity-financed company (no debt or preference shares); hence, its wACC equals its cost of equity. Weghorst Ltd's retained earnings will be sufficient to...
Suppose that you are considering investing $1,200 in one of the following bank CDs. •CD 1,...
Suppose that you are considering investing $1,200 in one of the following bank CDs. •CD 1, which will pay an interest rate of 9 % per year for three years •CD 2, which will pay an interest rate of 9 % the first year, 7 % the second year, and 6 % the third year The future value of CD 1 is $ ? and the future value of CD 2 is $ ? (Round your responses to the nearest...
QUESTION 1 The Lincoln’s are considering an investment that is expected to pay $750 per month...
QUESTION 1 The Lincoln’s are considering an investment that is expected to pay $750 per month for the next 10 years. If their required rate of return is 9.5 percent, how much is this investment worth to them today? $7,184 $57,961 $7,895 $1,932 QUESTION 2 Jefferson owns an investment that will pay $6,500 per year forever into the future. If his discount rate is 21 percent, how much is this investment worth to him today? $30,952 $310 $26,351 $136,500...
1. True or False (20 points, 2 point each) 12 678 9 10 No. Answer 1....
1. True or False (20 points, 2 point each) 12 678 9 10 No. Answer 1. Marginal cost is based on the principle that an aditional unit of production wil only entail an increase in the fixed costs and that the variable costs will not be affected 2. The greater the balance you have in your account, the slower your savings will grow 3. In case of capital rationing, we should accept project with the highest positive NPV. 4. Interest...
I1. True or False (20 points, 2 point each) No. 1. Marginal cost is based on...
I1. True or False (20 points, 2 point each) No. 1. Marginal cost is based on the principle that an additional unit of production will only entail an increase in the fixed costs and that the variable costs will not be affected. 2. The greater the balance you have in your account, the slower your savings will grow 3. In case of capital rationing, we should accept project with the highest positive NPV 4. Interest Rate measures the coupon payment...
1. Consider a family where both the husband and wife work, and assume each spouse has...
1. Consider a family where both the husband and wife work, and assume each spouse has three more years to work (after the current year) before retirement. The table below indicates the projected combined salary over the remaining work years if they each stay with their current employers. It also shows the combined salary they can expect if they relocate and change employers. Year Combined Salary at Current Jobs Combined Salary at New Jobs 1 $80,000 $83,000 2 $82,000 $87,000...
Suppose we have a 2-person world, with only Stephen and his
friend LeBron. Suppose that Stephen can move 70 boxes or bake 28
cookies in an hour. Suppose that LeBron could move 16 boxes or bake
4 cookies in an hour. Is trade possible?
Choose one:A. No, trade isn’t possible, because
LeBron has an absolute advantage in both making cookies and moving
boxes.B. Yes, trade is possible. Stephen should move boxes while
LeBron makes cookies, because Stephen has a comparative...
In financial analysis, it is important to select an appropriate discount rate. A project's discount rate must be high to compensate investors for the project's risk. The return that shareholders require from the company as a compensation for their investment risk is referred to as the cost of equity. Consider this case: Sunny Co. is a 100% equity-financed company (no debt or preferred stock); hence, its WACC equals its cost of common equity. Sunny Co.'s retained earnings will be sufficient...
2. Cannon Inc. has identified an investment project with the following cash flows. If the discount rate is 8%, what is the future value of these cash flows in year 4? if the discount rate is 11%, what is the future value in year 4? Show your work. Year Cash Flow 1 $1,225 2 $1,345 3 $1,460 4 $1,590 Page 12 - Q + Cannon Inc. has identified an investment project with the following cash flows. If the discount rate...
In financial analysis, it is important to select an appropriate discount rate. A project's discount rate must be high to compensate investors for the project's risk. The return that shareholders require from the company as a compensation for their investment risk is referred to as the cost of equity. Consider this case: Weghorst Ltd is a 100% equity-financed company (no debt or preference shares); hence, its wACC equals its cost of equity. Weghorst Ltd's retained earnings will be sufficient to...
1. True or False (20 points, 2 point each) 12 678 9 10 No. Answer 1. Marginal cost is based on the principle that an aditional unit of production wil only entail an increase in the fixed costs and that the variable costs will not be affected 2. The greater the balance you have in your account, the slower your savings will grow 3. In case of capital rationing, we should accept project with the highest positive NPV. 4. Interest...
I1. True or False (20 points, 2 point each) No. 1. Marginal cost is based on the principle that an additional unit of production will only entail an increase in the fixed costs and that the variable costs will not be affected. 2. The greater the balance you have in your account, the slower your savings will grow 3. In case of capital rationing, we should accept project with the highest positive NPV 4. Interest Rate measures the coupon payment...
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