CHAPTER 4 PART II: VALUATION AND CAPITAL BUDGETING Discounted Cash Flow Valuation The signing of big-name athletes is often accompanied by great fanfare‚ but the numbers are often misleading. For example‚ in late 2010‚ catcher Victor Martinez reached a deal with the Detroit Tigers‚ signing a contract with a reported value of $50 million. Not bad‚ especially for someone who makes a living using the “tools of ignorance” (jock jargon for a catcher’s equipment). Another example is the contract signed
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Topic 1: Financial Markets 1. You are among the OTC market makers in the stock of Bio-Engineering‚ Inc. and quote a bid of 102 1/4 and an ask of 102 1/2. Suppose that you have a zero inventory. (a) On Day 1 you receive market buy orders for 10‚000 shares and market sell orders for 4‚000 shares. How much do you earn on the 4‚000 shares that you bought and sold? What is the value of your inventory at the end of the day? (Hints: It is possible to have negative inventory. Further‚ there is more than
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its future flexibility by borrowing in the short term. Instead‚ it wanted to borrow for an 8 year range (or longer) at a fixed rate. However‚ since the general level of interest rates were pretty high‚ and Goodrich’s credit ratings had dropped from BBB to BBB-. Goodrich believed that it would have to pay 13% interest for a 30 year corporate debenture. Salomon Brothers had advised Goodrich that they could borrow in the US public debt market with a floating rate debt issue tied to the LIBOR
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equity has dropped from 12.25% to 10.60% as a result of this. Google‚ Inc. continues to have debt in its capital structure‚ and its debt-to-equity ratio is 30%. What is the return on assets of Google‚ Inc.(No more than two decimals in the percentage interest rate‚ but do not enter the % sign.) Answer for Question 3 Question 4 (10 points) Suppose CAPM holds‚ and the beta of the equity of your company is 2.00. The expected market risk premium (the difference between the expected market return and
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Introduction to Financial Management UNIT 1 INTRODUCTION TO FINANCIAL MANAGEMENT Structure Nos. 1.0 1.1 1.2 1.3 1.4 Introduction Objectives Evolution of Financial Management Significance of Financial Management Principles of Financial Management 1.4.1 1.4.2 1.4.3 1.4.4 1.5 1.6 1.7 5 6 6 6 8 Investment Decision Financing Decision Dividend Decision Liquidity Decision Objectives of Financial Management Economic Profit vs. Accounting Profit Agency Relationship
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minimize operational costs and maximize firm efficiency. e. maintain steady growth in both sales and net earnings. ( c ) 2. The interest rate expressed as if it were compounded once per year is called the _____ rate. a. stated interest b. compound interest c. effective annual d. periodic interest e. daily interest ( b ) 3. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you
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CHAPTER 3 How to Calculate Present Values Answers to Practice Questions 1. a. PV = $100 0.905 = $90.50 b. PV = $100 0.295 = $29.50 c. PV = $100 0.035 = $ 3.50 d. PV = $100 0.893 = $89.30 PV = $100 0.797 = $79.70 PV = $100 0.712 = $71.20 PV = $89.30 + $79.70 + $71.20 = $240.20 2. a. PV = $100 4.279 = $427.90 b. PV = $100 4.580 = $458.00 c. We can think of cash flows in this problem as being the difference between two separate streams
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is the key economic principle involved in calculating the present value and future value of multiple cash flows? Regardless of whether you are calculating the present value or the future value of a cash flow stream‚ the key idea is to discount or compound the cash flows to the same point in time. 6.3 What is the difference between a perpetuity and an annuity? A cash flow stream that consists of the same amount being received or paid on a periodic basis is called an annuity. If the same payments
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on your financial calculator‚ use the basic formula for future value along with the given interest rate‚ r‚ and the number of periods‚ n‚ to calculate the future value of $1 in each of the cases shown in the following table. P5–4 Future values for each of the cases shown in the following table‚ calculate the future value of the single cash flow deposited today at the end of the deposit period if the interest is compounded annually at the rate specified. Personal Finance Problem P5–6 Time value
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CHAPTER 6 INTEREST RATES AND BOND VALUATION L E A R N I N G LG1 Describe interest rate fundamentals‚ the term structure of interest rates‚ and risk premiums. LG2 Review the legal aspects of bond financing and bond cost. LG3 LG4 Discuss the general features‚ quotations‚ ratings‚ popular types‚ and international issues of corporate bonds. LG5 LG6 G O A L S Apply the basic valuation model to bonds and describe the impact of required return and time to maturity
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