finc 600 week 2 assignment homework problems
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Buy here: http://homework.plus/finc-600-week-2-assignment-homework-problems/ FINC600 Week 2 Assignment - Homework Problems
Problem 4-10
Under what conditions does r , a stock's market capitalization rate, equal its earningsprice ratio
EPS1/P0?
Problem 4-12
What is meant by the "horizon value" of a business? How can it be estimated?
Problem 5-9
Respond to the following comments:
a. "I like the IRR rule. I can use it to rank projects without having to specify a discount rate."
b. "I like the payback rule. As long as the minimum payback period is short, the rule makes sure
that the company takes no borderline projects. That reduces risk."
Problem 5-16
Some people believe firmly, even passionately, that ranking projects on IRR is OK if each
project's cash flows can be reinvested at the project's IRR. They also say that the NPV rule
"assumes that cash flows are reinvested at the opportunity cost of capital." Think carefully about
these statements. Are they true? Are they helpful?
Problem 6-2
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:
PV = 100,000/1.08 = $92,593
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.)
Problem 6-13
Each of the following statements is true. Explain why they are consistent.
a. When a company introduces a new product, or expands production of an existing product,
investment in net working capital is usually an important cash outflow.
b. Forecasting changes in net working capital is not necessary if the timing of all cash inflows and
outflows is carefully specified.