EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Chapter 8, Problem 33QP
Summary Introduction
To identify:
Real Cash Flows:
Real cash flows is the cash flow which is modified due to increase or decrease in money value so as to present and evaluate any changes that arise in the value of money over a period of time.
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Uncle Ben saved $800.000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600.000. The following table presents the estimated cash inflows for the two alternatives.
Year 1
Year 2
Year 3
Year 4
Opportunity # 1
$178,000
$188,000
$252,000
$324,000
Opportunity # 2
328,000
348,000
56,000
48,000
Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent.
Answer this question:
Compute for the Net Present Value of opportunity #1.
Compute for the Profitability Index of opportunity #1
Compute for the Net Present Value of opportunity #2
Compute for the Profitability Index of opportunity…
Uncle Ben saved $800.000 during the 25 years that he worked for a major corporation. Now he has retired at the age of 50 and has begun to draw a comfortable pension check every month. He wants to ensure the financial security of his retirement by investing his savings wisely and is currently considering two investment opportunities. Both investments require an initial payment of $600.000. The following table presents the estimated cash inflows for the two alternatives.
Year 1
Year 2
Year 3
Year 4
Opportunity # 1
$178,000
$188,000
$252,000
$324,000
Opportunity # 2
328,000
348,000
56,000
48,000
Uncle Ben decides to use his past average return on mutual fund investments as the discount rate; it is 8 percent.
Find:
Payback Period
Modified Payback Period
Net Present Value
Profitability Index
Accounting Rate of Return
Internal Rate of Return
Bruce is considering the purchase of a restaurant named Hard Rock Hollywood. The restaurant is listed for sale at $1,000,000. With the help of his accountant, Bruce projects the net cash flows (cash inflows less cash outflows) from the restaurant to be the following amounts over the next 10 years:Years Amount 1–6 $100,000 (each year) 7 110,000 8 120,000 9 130,000 10 140,000Bruce expects to sell the restaurant after 10 years for an estimated $1,300,000. Required: If Bruce wants to make at least 11% annually on his investment, should he purchase the restaurant? (Assume all cash flows occur at the end of each year.)
Chapter 8 Solutions
EBK CORPORATE FINANCE
Ch. 8 - Prob. 1CQCh. 8 - Prob. 2CQCh. 8 - Prob. 3CQCh. 8 - Yield to Maturity Treasury bid and ask quotes are...Ch. 8 - Coupon Rate How does a bond issuer decide on the...Ch. 8 - Real and Nominal Returns Are there any...Ch. 8 - Prob. 7CQCh. 8 - Prob. 8CQCh. 8 - Term Structure What is the difference between the...Ch. 8 - Crossover Bonds Looking back at the crossover...
Ch. 8 - Municipal Bonds Why is it that municipal bonds are...Ch. 8 - Prob. 12CQCh. 8 - Treasury Market Take a look back at Figure 8.4....Ch. 8 - Prob. 14CQCh. 8 - Bonds as Equity The 100-year bonds we discussed in...Ch. 8 - Bond Prices versus Yields a. What is the...Ch. 8 - Interest Rate Risk All else being the same, which...Ch. 8 - Valuing Bonds What is the price of a 15-year, zero...Ch. 8 - Valuing Bonds Microhard has issued a bond with the...Ch. 8 - Prob. 3QPCh. 8 - Coupon Rates Rhiannon Corporation has bonds on the...Ch. 8 - Valuing Bonds Even though most corporate bonds in...Ch. 8 - Prob. 6QPCh. 8 - Zero Coupon Bonds You find a zero coupon bond with...Ch. 8 - Valuing Bonds Yan Yan Corp. has a 2,000 par value...Ch. 8 - Prob. 9QPCh. 8 - Prob. 10QPCh. 8 - Inflation and Nominal Returns Suppose the real...Ch. 8 - Prob. 12QPCh. 8 - Prob. 13QPCh. 8 - Prob. 14QPCh. 8 - Prob. 15QPCh. 8 - Prob. 16QPCh. 8 - Bond Price Movements Miller Corporation has a...Ch. 8 - Interest Rate Risk Laurel, Inc., and Hardy Corp....Ch. 8 - Interest Rate Risk The Faulk Corp. has a 6 percent...Ch. 8 - Bond Yields Hacker Software has 6.2 percent coupon...Ch. 8 - Prob. 21QPCh. 8 - Prob. 22QPCh. 8 - Prob. 23QPCh. 8 - Prob. 24QPCh. 8 - Prob. 25QPCh. 8 - Prob. 26QPCh. 8 - Prob. 27QPCh. 8 - Prob. 28QPCh. 8 - Prob. 29QPCh. 8 - Holding Period Yield The YTM on a bond is the...Ch. 8 - Prob. 31QPCh. 8 - Prob. 32QPCh. 8 - Prob. 33QPCh. 8 - Prob. 34QPCh. 8 - Real Cash Flows Paul Adams owns a health club in...Ch. 8 - FINANCING EAST COAST YACHTS'S EXPANSION PLANS WITH...Ch. 8 - Prob. 2MCCh. 8 - Prob. 3MCCh. 8 - Prob. 4MCCh. 8 - Prob. 5MCCh. 8 - Are investors really made whole with a make-whole...Ch. 8 - After considering all the relevant factors, would...
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