Question

7. The annual annuity stream of payments with the same present va the project's_ - cost. a. incremental C. d. opportunity equivalent annual 8. A cost that has already been paid, or the liability to pay has already been in a. salvage value expense. b. sunk cost. C. opportunity cost. Samarbrod or bloze d. erosion cost 9. A bond with semi-annual interest payments, all else equal, would be price with annual interest payments. A. higher B. lower C. the same D. it is impossible to tell 10. The constant dividend growth model: (1) assumes that dividends increase at a constant rate forever. (11) can be used to compute a stock price at any point of time. (III) states that the market price of a stock is only affected by the amou (IV) considers capital gains but ignores the dividend yield. A. I only B. Il only C and II only non logo

Answer 1

7:d

The equivalent annual cost is the annual value of present value of the costs associated with the project .

8: b

This represents a sunk cost since the cost is already been incurred and hence it is irrelevant in decision making. Salvage value expense is the expense incurred for attaining salvage value. Opportunity cost is the cost of the next best alternative while erosion cost represents the cost of lost revenue.

9: A

Such bond will be priced higher since more coupons will be received thus increasing the compounding factor.

10:C

As per the constant dividend growth Stock price= expected dividend/(the required rate of return-growth rate)

Hence this model assumes that dividends will increase at a constant growth rate. This formula can be used to compute the stock price at any point of time using the next expected dividend. The 3rd statement is incorrect because stock prices also affected by up required rate of return. The full of statement is incorrect because this model considers dividend yield as well.