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Chapter 4
29. Annuity Present Values What is the value today of a 15-year annuity that pays $500 a year?The annuity’s first payment occurs at the end of year 6. The annual interest ** rate** is 12 percentfor years 1 through 5, and 15 percent thereafter.
(Ross, Stephen A.. Corporate Finance, 8th Edition. Irwin/McGraw-Hill, 112006. 4.8).
33. Growing Annuity Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company...

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Week 5 – Homework Answers
P8-1. Suppose that a 30-year U.S. Treasury bond offers a 4% coupon ** rate**, paid semiannually. The market price of the bond is $1,000, equal to its par value.
a. What is the payback period for this bond?
b. With such a long payback period, is the bond a bad investment?
c. What is the discounted payback period for the bond assuming its 4% coupon

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Bill. How would you explain to Mary the relationship between risk and ** return** of individual stocks?
As the risk increases the potential

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cost the amount of $ 60,000. The discount ** rate** is 10%. The cash flows before depreciation and tax are as follows:
Year Proposal A Proposal B
$ $
0 (60,000) (60,000)
1 18,000 19,000
2 15,000 17,000
3 18,000 19,000
4 16,000 14,000
5 19,000 15,000
6 14,000 13,000
Evaluate the above proposals according to:
1. Pay Back Period.
2. Accounting

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Investor appear to be the comparable firms.
2. Find the risk-free ** rate**.
To determine the risk free

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involved in computing the future value when you have multiple cash flows.
First, prepare a time line to identify the size and timing of the cash flows. Second, calculate the present value of each individual cash flow using an appropriate discount ** rate**. Finally, add up the present values of the individual cash flows to obtain the present value of a cash flow stream. This approach is especially useful in the real world where the cash flows for each period are not the same.
6.2 What is the key economic...

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insurance premium
compute the rental ** return** on property investment
2
Selection Criteria of Mortgage Loan
The following factors should be considered when
choosing mortgage loan plan:
1. Interest

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earnings, operating profit etc.
Equity investors should earn on their capital a ** return** far over risk-free interest

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etc.), value is created by how you finance a project.
False.
True.
Question 2
(5 points) The ** return** on equity is equal to the

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assessing the reasonableness of the investment, mainly considering the estimate internal *return*** rate** comparing with the weighted average cost of capital. The key factor will be the WACC, the higher

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