FUNDAMENTAL OF CORPORATE FINANCE
4th Edition
ISBN: 9781323942925
Author: Berk
Publisher: PEARSON
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Textbook Question
Chapter 4, Problem 7CT
What must be true about the growth rate in order for a growing perpetuity to have a finite value?
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Which one of these statements related to growing annuities and perpetuities is correct?
In computing the present value of a growing annuity, you discount the cash flows using the growth rate as the discount rate.
You can compute the present value of a growing annuity but not a growing perpetuity.
The future value of an annuity will decrease if the growth rate is increased.
An increase in the rate of growth will decrease the present value of an annuity.
The present value of a growing perpetuity will decrease if the discount rate is increased.
Which of the following best describes the constant-growth dividend discount model?
Select one:
a. It is the formula for the present value of a growing annuity
b. It is the formula for the present value of a growing annuity
c. It is the formula for the present value of a growing perpetuity
What happens to the present value of some fixed dollar amount to be received in the future as time to the money decrease? Why?
Chapter 4 Solutions
FUNDAMENTAL OF CORPORATE FINANCE
Ch. 4 - Prob. 1CCCh. 4 - Prob. 2CCCh. 4 - Prob. 3CCCh. 4 - Prob. 4CCCh. 4 - Prob. 5CCCh. 4 - Prob. 6CCCh. 4 - Howcanan infinitely...Ch. 4 - Prob. 8CCCh. 4 - Prob. 9CCCh. 4 - Prob. 10CC
Ch. 4 - Prob. 11CCCh. 4 - Whencashflowsoccur at anon-annual interval, what...Ch. 4 - What is the intuition behind the fact that the...Ch. 4 - What must be true about a cash flow stream in...Ch. 4 - Prob. 3CTCh. 4 - Prob. 4CTCh. 4 - Prob. 5CTCh. 4 - Prob. 6CTCh. 4 - What must be true about the growth rate in order...Ch. 4 - In what types of situations would it be useful to...Ch. 4 - Prob. 1DCCh. 4 - Prob. 2DCCh. 4 - Prob. 3DCCh. 4 - Calculate the present value of the salary...Ch. 4 - Prob. 5DCCh. 4 - Prob. 1PCh. 4 - What is the present value of the following set of...Ch. 4 - You want to borrow $10,000. You figure that you...Ch. 4 - Prob. 4PCh. 4 - You have just taken out a five-year loan from a...Ch. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Prob. 8PCh. 4 - Prob. 9PCh. 4 - Prob. 10PCh. 4 - 11. Assume you can earn 9% per year on your...Ch. 4 - Prob. 12PCh. 4 - Prob. 13PCh. 4 - 14. The British government has a consol bond...Ch. 4 - Prob. 15PCh. 4 - Prob. 16PCh. 4 - Prob. 17PCh. 4 - Prob. 18PCh. 4 - 19. Your grandmother has been putting $1000 into a...Ch. 4 - 20. Assume that your parents wanted to have...Ch. 4 - Prob. 21PCh. 4 - Prob. 22PCh. 4 - 23. Assume that Social Security promises you...Ch. 4 - 24. When Alex Rodriguez moved to the Texas...Ch. 4 - Prob. 25PCh. 4 - A rich relative has bequeathed you a growing...Ch. 4 - Prob. 27PCh. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - 30. A rich aunt has promised you $5000 one year...Ch. 4 - Prob. 31PCh. 4 - Prob. 32PCh. 4 - Prob. 33PCh. 4 - 34. You have decided to buy a perpetual bond. The...Ch. 4 - Prob. 35PCh. 4 - 36. You are thinking about buying a piece oi art...Ch. 4 - 35. You are thinking of purchasing a house. The...Ch. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - 40. A local bank is running the following...Ch. 4 - Prob. 41PCh. 4 - Prob. 42PCh. 4 - 43. Suppose you currently have $5000 in your...Ch. 4 - 44. Your firm spends $5000 every month on printing...Ch. 4 - 45. You are looking to buy a car and can afford to...Ch. 4 - Prob. 46PCh. 4 - Prob. 47PCh. 4 - Prob. 48P
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- Discuss the meaning and significance of the perpetuity growth rate in the DCF Valuation and how you will go about forecasting itarrow_forwardWhich of the following best describes the constant-growth dividend discount model? a. It is the formula for the future value of a growing annuity. b. It is the formula for the present value of an ordinary annuity. c. It is the formula for the future value of a perpetuity. d. It is the formula for the future value of an ordinary annuity. e. It is the formula for the present value of a growing perpetuity.arrow_forwardA growing annuity is a cash flow stream with ________ (an infinite, a finite) life, while a growing perpetuity is a cash flow stream with a _______ (infinite or finite) . Therefore, given same initial cash flow, growth rate, and interest rate, the present value of the perpetuity will always be ___________ (greatwe rhan, less than, or equal to) the present value of the annuity.arrow_forward
- Why does an annuity due always have a higher future value than an ordinaryannuity?arrow_forwardWhat is the relationship between Future Value Factor and Future Value of an Annuity Factor?arrow_forwardWhen computing an interest or growth rate, the rate will increase the smaller the future value, holding present value and the number of periods constant. Is this true or false?arrow_forward
- Define the discounted payback period as the number of years required to recover the investment from discounted cash flows? Give an example?arrow_forwardThe larger the periodic payment of an annuity, the greater its present value. True or False?arrow_forwardWhich of the following affects the present value of an investment? The type of investment (annuity versus single lump sum) The number of time periods (length of the investment) The interest rate All of the abovearrow_forward
- A financial analyst is treating a cash flow stream as a perpetuity. The present value of the perpetuity will __________ (increase, decrease, or not change) if the interest rate increases, and will ___________ (increase, decrease, or not change) if the growth rate increases.arrow_forwardIs it okay to solve the payback period using the initial investment divided by the after-tax cashflow?arrow_forwardHow much has to be put away today to provide some dollar amount in the future?arrow_forward
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