RC: RC would give the insurance company his income today and tomorrow, and in exchange would receive $320 today and tomorrow. Assume there is no default. Is RC better off taking the insurance company’s offer? Why or why not? ANSWER The present value
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valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Calculating PV factor: i= required return = 9% = 0.09 n= 10 years Using Cash Flow of $1000 to calculate present value, Cash flow= $1000 PV factor = 1/(1+i)^n = 0.42241 PV = $1000*0.42241= 422.41 Using Coupon Rate to calculate present value of Annuity Cash
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Discussion questions and practical exercises: Word Count: 1002 Total pages: 7 Question A-1 The real owners of a company are its shareholders. The objective of maximising a firm’s market value to shareholders is achieved by increasing the price of existing ordinary shares. This market price reflects the value of the firm as seen by its owners. An accountant’s position within a corporation can have numerous responsibilities with equal importance. The majority of attention for an accountant is indeed
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Sampa Video, Inc. 1. What is the appropriate discount rate and the value of the project assuming the firm is going to fund it with all equity? “The discount rate of a project should be the expected return on a financial asset of comparable risk” To estimate Sampa Video’s cost of equity capital we used the CAPM model, in which rf refers to the risk free rate, to the market risk premium, and ß to the company Beta (Table 1). Since the Beta of the company wasn’t known, we decided to use an
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= X R = {N( M-S )}/(N+1 ) X = ( NM + S )/(N+1 ) Financial Future Value FV = PV (1 + i)n Present Value PV = FV (1 + i)-n Annuity Future Value FV = PMT {[(1 + i)n - 1]/ i} Annuity Present Value PV = PMT {[1 - (1 + i)-n]/ i} Perpetuity PV = Pmt /i Dividends No growth P0 = d1 /r Dividends constant growth P0 = d1 /(r - g) Effective interest rate ie = (1 + i)m - 1 Net Present Value NPV = PV of future cash flows less Cost of the investment PVI or Benefit Cost
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=$8640-$2000 = $ 6640 On 45th Day Lisa Paid $1000 so amount due = $6640-$1000 = $5640 Total Interest = ordinary Interest = 8% 8. Bob's proceeds: Discount on the note is calculated as follows: Maturity Value * Discount Rate * Discount Period = Discount
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of a larger company or he may choose to improve his production with the use of technological advances. Through technology, such as the use of computerized cutting instruments that will improve the accuracy of the cuts and allows for less production time it would allow the Guillermo Furniture Company to increase profit and a low cost per piece. Another alternative is to form a partnership with a competitor not yet
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CORPORATE FINANCE 1) Valuation formulae Let V be the present value of an asset or security that pays cash flows in the future, where the last cash flow is to be received at time T (note that, if cash flows are to be received forever, then T = ∞). Let CFt be the cash flow to be received at time t, and let rt be the appropriate discount rate for the period from now to time t. Then, [pic] Special cases: i) Time periods between cash flow payments are of equal length ii) The
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Week 2: Text Problems University of Phoenix FIN/GM571 International Corporate Finance Chapter 4 A9. (Rate of return) After graduation, Adrian moved across the country to Brownville and bought a small house for $208,000. Bill moved to Columbus and bought a house for $195,000. Four years later, they both sold their houses. Adrian netted $256,000 when she sold her house and Bill netted $168,000 on his. a. What annual rate of return did Adrian realize on her house? b
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Review the Time Value of Money simulation. Which option did you initially choose, cash or annuity? How were your winnings affected by the cash option? How did this compare to the annuity option? If you won the lottery today, which option would you choose and why? Under time value of money simulation, the option between cash or annuity is evaluated on the criteria of short term benefits with strategic (long-term) benefits.Cash option is opted when somebody is looking for quick returns & results
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