Exam 4: Discounted Cash Flow Valuation

Jensen's Shipping wants to expand as soon as it can save $112 million.Towards that goal,the firm started saving 3 years ago and currently has $38.2 million saved.Starting today,the firm will add $15,000 a month to this savings account.The rate of return is 7.1 percent,compounded monthly.How long will it be from now before the company can expand?

What is the effective annual rate if a firm charges you 7.75 percent,compounded daily,based on a 360-day year?

TL Enterprises (TLE)is considering purchasing DMM.DMM has expected cash flows of $42,800,$56,700,and $37,100 for the next 3 years,respectively.After that,the products DMM produces will be obsolete and thus DMM will be worthless.If TLE requires a return of 18 percent,what amount should they offer as a purchase price?

The present value of an ordinary annuity formula is

You retire at age 66 and expect to live another 25 years.On the day you retire,you have $128,500 saved.You expect to earn 4.5 percent,compounded monthly.How much can you withdraw from your savings each month if you plan to die on the day you spend your last penny?

What is the effective annual rate if the APR is 6.35 percent,compounded continuously?

An annuity

East Coast Investors invested $28,000 a year into a project for the past 7 years.Today,the project was sold for a net of $324,000.What is the rate of return,ignoring taxes?

You are considering two insurance settlement offers.The first offer includes annual payments of $25,000,$17,500,and $12,500,with the first payment being paid 1 year from now.The other offer is a lump sum amount today.What is the minimum amount you will accept today in lieu of the annual payments if you require a discount rate of 6.2 percent?

Wise University expects to receive $100 next year from a new donor.They also expect this amount to increase by 3 percent annually and to continue forever.Which formula will correctly compute the current value of this donation at a discount rate of 13 percent?

Erickson's is considering a project with an initial cost of $623,000.The project will produce cash inflows of $33,500 monthly for 21 months.What is the annual rate of return on this project?

Which one of these is the best indicator that acquiring a firm is a good idea?

An investment will pay $1,200 per quarter for 15 years.You require a return of 12 percent,compounded quarterly,for this type of investment.How much is this investment worth to you today?

The value of a firm is best defined as the

Annuities with payments occurring at the end of each time period are called ________,whereas annuities with payments occurring at the beginning of each time period are called ________.

Texas Foods has a loan that requires one lump sum payment at the end of 12 years in the amount of $139,000.The interest rate is 5.8 percent,compounded monthly.What amount did the firm borrow?

Assume two annuities will each provide $500 annual cash flows for 5 years.One is an ordinary annuity and the other is an annuity due.Which statement concerning these annuities is correct?

This morning,you invested your tax refund of $638 at an interest rate of 3.1 percent,compounded annually.How much will this investment be worth 7 years from now?

An investment will pay $3,000 every 3 years with the first payment occurring 3 years from today.The investment has a 12-year life.To compute the present value of this investment you need to calculate the

Martha receives $200 on the first of each month.Stewart receives $200 on the last day of each month.Both Martha and Stewart will receive payments for 30 years.The discount rate is 9 percent,compounded monthly.What is the difference in the present value of these two sets of payments?