Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 9, Problem 3Q
Summary Introduction
To discuss: Key assumption on which AFN equation is based and some conditions this assumption does not hold true.
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Which balance sheet might be most useful to an investor?
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- The followings are the instructions for this case. Provide the excel file where the computations are done. You have to use the following equation: WACC = Wd*Rd*(1-t)+We*Re. Where WACC stands for the Weighed average cost of capital, Wd is the weight of debt in the capital could be either market value weight or book value weight and it is calculated in the following way: Wd=D/(E+D), where D is either the book value of debt or the market value of debt, E is the book value of equity or the market value of equity. So keep in mind if you want Wd on book value basis, then both E and D must be on book value basis, if you want Wd on a market value basis, then both E and D must be on market value basis. Rd is the cost of debt (percentage cost of debt), t is the tax rate, We is the weight of equity in the capital could be either market value weight or book value weight, We = E/(E+D), as I explained Wd, it could be either on a book value or book value basis. Re is the cost of equity. Q1: you have…arrow_forward_______ is a measure of risk while _______ is a measure of risk and liquidity. NPV; IRR IRR; NPV PI; payback Payback; PIarrow_forwardThe followings are the instructions for this case. Provide the excel file where the computations are done. GIVE ANSWERS PLEASE. I WILL UPVOTE! You have to use the following equation: WACC = Wd*Rd*(1-t)+We*Re. Where WACC stands for the Weighed average cost of capital, Wd is the weight of debt in the capital could be either market value weight or book value weight and it is calculated in the following way: Wd=D/(E+D), where D is either the book value of debt or the market value of debt, E is the book value of equity or the market value of equity. So keep in mind if you want Wd on book value basis, then both E and D must be on book value basis, if you want Wd on a market value basis, then both E and D must be on market value basis. Rd is the cost of debt (percentage cost of debt), t is the tax rate, We is the weight of equity in the capital could be either market value weight or book value weight, We = E/(E+D), as I explained Wd, it could be either on a book value or book value basis. Re…arrow_forward
- Which of the following correctly orders the investment rules of average accounting return (AR), internal rate of return (IRR), and net present value (NPV) from the most desirable to the least desirable? a. IRR, AR, NPV. b. AR, IRR, NPV. c. NPV, AR, IRR. d. AR, NPV, IRR. e. NPV, IRR, AR.arrow_forwardWhat is the formula to find an expected in returns in CAPMarrow_forwardWhich one of the following is most closely related to the net present value profile? A: Payback B: Discounted payback C: Profitability index D: Average accounting return E: Internal rate of returnarrow_forward
- What advantages does the forecasted financial statement method have over theAFN equation for forecasting financial requirements?arrow_forwardWhich of the following is the correct definition for present value (PV)? Select one: a. The current value of the sum of all the past cash flows given a specified rate of return. b. The current value of the sum of all the future profits made by the company with a specified rate of return. c. The current value of a future sum of money or stream of cash flows given a specified rate of return. d. The future value of the sum of all the future cash flows without a specified rate of return.arrow_forwardWhich of the following theories can be assessed using data that exists at one specific point in time? A. purchasing power parity (PPP) B. international Fisher effect (IFE). C. A and B D. interest rate parity (IRP).arrow_forward
- What is the equation to calculate the accounting rate of return?arrow_forwardMatch each term with the best definition or descriptor. NPV is __________ ( a unitless ratio, a unit of time, a dollar vallue, or a rate of return). IRR is ___________ ( a unitless ratio, a unit of time, a dollar vallue, or a rate of return). Profitability index is __________( a unitless ratio, a unit of time, a dollar vallue, or a rate of return).arrow_forwardCarrying amounts in a GAAP balance sheet are measured using all the following except: Multiple Choice historical cost. net realizable value. discounted present value. projected ROI.arrow_forward
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