Lecture 3~4 Exercise Problems and Questions. 1. Calculating Annuity Present Values. An investment offers $8,500 per year for 15 years, with the first payment occurring 1 year from now. If the required return is 9 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever? 2. Calculating Annuity Cash Flows. If you put up $25,000 today in exchange for a 7.9 percent, 12year annuity, what will the annual cash flow be? 3. Calculating Perpetuity Values. Dawa Financial is trying to sell you an investment policy that will pay you and your heirs $35,000 per year forever. If the required rate of return on this investment is 7 percent, how much will you pay for the policy? 4. Calculate EAR. First National Bank charges 10.1 percent compounded monthly on its business loans. First United Bank charges 10.3 percent compounded seminally. As a potential borrower, which bank would you go to for a new loan? 5. Calculating APR. Magnus Credit Corp. wants to earn an effective annual return on its consumer loans of 16 percent per year. The bank uses weekly compounded on its loans. What interest rate is the bank required by law to report to potential borrowers? Explain why this rate is misleading to an uninformed borrower. 6. Calculating Loan Payments. You want to buy a new sports coupe for $73,800, and the finance office at the dealership has quoted you a 6.1 percent APR loan for 60 months to buy the car. What will your monthly payments be? What is the effective annual rate on this loan? 7. Discounted Cash Flow Analysis. If the appropriate discount rate for the following cash flows is 8.4 percent, what is the present value of the cash flows?

1

Year 1 2 3 4

Cash Flow $1,200 1,100 800 400

8. Calculating Annuity Due. You want to buy a new sports car from Muscle Motors for $43,000. The contract is in the form of 1 60-month annuity due at a 6 percent APR. What will your monthly payment be? 9....

...The role of cashflow information in discriminating between bankrupt and non-bankrupt companies remains a contentious issue. In a number of literature reviews on bankruptcy prediction (e.g. Zavgren, 1983; Jones, 1987; Neill et al. 1991; Watson, 1996) the common view is that cashflow information does not contain significant incremental information content over accrual information in discriminating between bankrupt and non-bankrupt firms....

...87%
b. 1.53%
c. 2.00%
d. 0.96%
e. 0.44%
2. Find the present value of an income stream that has a negative flow of $100 per year for 3 years, a positive flow of $200 in the 4th year, and a positive flow of $300 per year in Years 5 through 8. The appropriate discount rate is 4 percent for each of the first 3 years and 5 percent for each of the later years. Thus, a cashflow accruing in Year 8 should be discounted...

...Chapter – 1
INTRODUCTION TO FINANCIAL MANAGEMENT
MEANING AND DEFINITION OF FINANCIAL MANAGEMENT
According to the Encyclopedia of Social Sciences, Corporate finance deals with the financial problems of corporate enterprises. Problems include financial aspects of the promotion of new enterprises and their administration during early development, the accounting problems connected with the distinction between capital and income, the...

...UNEVEN
CASHFLOWCashFlow Time Line
Future Value(FV):The amount to which a cashflow
or series of cashflows will grow over a given period of
time when compounded at a given interest rate.
Present Value(PV):The value today of a future cashflow or series of cashflows.
Compounding : The process of going to future...

...Cashflowmanagement: The life force of your businesses
By LaZandrea Porter
Cashflowmanagement is a vital force to the success of any business, large or small. Some have compared cashflowmanagement to the life source of the human body, the blood. Much like blood, cash keeps a business going, and cashflow is the...

...described money flow as the extent at which money flows into in an organisation, usually made from effective spending and financing activities. The components of cashflow must be evident on a planner so that it will be understood easily on how it occurred exactly. According to Donaldson & Gerard (2005), he stated that if cash is not observed carefully, the return which might have been planned might not be recognized by the...

... Explain.
Our basic principle of stock valuation is that the value of a share of stock is simply equal to the present value of all of the expected dividends on the stock. According to the dividend growth model, an asset that has no expected cashflows has a value of zero, so if investors are willing to purchase shares of stock in firms that pay no dividends, they evidently expect that the firms will begin paying dividends at some point in the future.
2....

...present value of the asset’s expected future cashflows.
SECURITY VALUATION
In general, the intrinsic value of an asset = the present value of the stream of expected cashflows discounted at an appropriate required rate of return.
Can the intrinsic value of an asset differ from its market value?
Ct = cashflow to be received at time t.
k = the investor’s required rate of return.
V = the intrinsic value of...

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