PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 6, Problem 5PS
Real and nominal flows Mr. Art Deco will be paid $100,000 one year hence. This is a nominal flow, which he discounts at an 8% nominal discount rate:
The inflation rate is 4%.
Calculate the PV of Mr. Deco’s payment using the equivalent real cash flow and real discount rate. (You should get exactly the same answer as he did.)
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Mr. Art Deco will be paid $270,000 one year hence. This is a nominal flow, which he discounts at an 10% nominal
discount rate:
PV = $270,000 ÷ 1.10 = $245,455
The inflation rate is 5%.
Calculate the PV of Mr. Deco's payment using the equivalent real cash flow and real discount rate.
Note: Do not round intermediate calculations. Round your "Real cash flow" and "Present value" answers to the
nearest whole dollar amount. Enter the "Real discount rate" as a percent rounded to 3 decimal places.
Real cash flow
Real discount rate
Present value
%
Investment X offers to pay you $7,500 per year for 9 years, whereas Investment Y offers to pay you $10, 200 per year for 5 years. a. If the discount rate is 6 percent, what is the present value of these
cash flows? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. If the discount rate is 22 percent, what is the present value of these cash
flows? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. a. Present value of Investment X at 6 percent Present value of Investment Y at 6
percent b. Present value of Investment X at 22 percent Present value of Investment Y at 22 percent
Investment X offers to pay you $6,100 per year for 9 years, whereas Investment Y offers to pay you $8,400 per year for 5 years.
If the discount rate is 7 percent, what is the present value of these cash flows?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
If the discount rate is 23 percent, what is the present value of these cash flows?
Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.
Chapter 6 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 6 - Cash flows Which of the following should be...Ch. 6 - Cash flows Reliable Electric, a major Ruritanian...Ch. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Real and nominal flows Mr. Art Deco will be paid...Ch. 6 - Real and nominal flows Restate the net cash flows...Ch. 6 - Real and nominal flows Guandong Machinery is...Ch. 6 - Working capital Each of the following statements...Ch. 6 - Prob. 9PSCh. 6 - Project NPV Better Mousetraps research...
Ch. 6 - Project NPV A widget manufacturer currently...Ch. 6 - Project NPV Marsha Jones has bought a used...Ch. 6 - Project NPV United Pigpen is considering a...Ch. 6 - Project NPV Imperial Motors is considering...Ch. 6 - Project NPV and IRR A project requires an initial...Ch. 6 - Taxes and project NPV In the International Mulch...Ch. 6 - Depreciation and project NPV Suppose that Sudbury...Ch. 6 - Depreciation and project NPV Ms. T. Potts, the...Ch. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Equivalent annual cash flow Look at Problem 22...Ch. 6 - Equivalent annual cash flow Deutsche Transport can...Ch. 6 - Prob. 25PSCh. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives....Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Mutually exclusive investments and project lives...Ch. 6 - Replacement decisions Machine C was purchased five...Ch. 6 - Replacement decisions Hayden Inc. has a number of...Ch. 6 - Replacement decisions. You are operating an old...Ch. 6 - Replacement decisions. A forklift will last for...Ch. 6 - The cost of excess capacity The presidents...Ch. 6 - Effective tax rates One measure of the effective...Ch. 6 - Equivalent annual costs We warned that equivalent...
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