Im having a little trouble can someone please help me. Im not sure if my answers were right or what the rest would be.
1. _________C__________ is the interest rate in which NPV equals zero.
a. Required Rate of Return
b. Annual percentage rate (APR)
c. Internal Rate of Return
d. Yield to maturity
2. Weighted Average Cost of Capital (WAAC) is a formula that indicates________B______?
a. The interest rate
b. The interest rate that is the required rate of return demanded by investors
c. An interest rate representing the ratio of the required rate of interest of investors and the borrowing rate of interest
d. The weighted average of the borrowing rate of interest
3. What is the value of $10,000 5 years from now in today’s value if the interest rate is zero? B
a. $9,000
b. $10,000
c. $11,000
d. $0
4. What is PV? And FV? C
a. Positive Value and Futuristic Value
b. Prehistoric value Favre Value
c. Present value Future Value
d. Philanthropic Value and Favorite Value
5. What is the interest rate of a loan given the following data: Cost of item $20,000, down payment of $5,000, 4 year loan compounded monthly, monthly payment is $366.19
6. When using your calculator when using the CFj key, you should _______________?
a. Solve for IRR, then solve for NPV
b. Solve for PV, then find the interest rate
c. Solve for NPV, then solve for IRR
d. Find NPV, and accept the project under all conditions
7. Find the Weighted Average Cost of Capital:
Required Rate of Return 8%
Bank lending rate for loans is 10%
Tax rate is 35%
Asset Cost is $50,000
$10,000 of the asset will be paid for by equity
8. Solve this lump sum problem. How much would $1200 be worth in 4 years at monthly compound interest of 4%?
9. Solve for the following annuity problem. What would the payment be if you borrowed $23,000 for 6 years at 9% interest, compounded monthly?
10. Susan is planning to start a business and is seeking your help. She plans on investing $10,000 and borrowing $40,000. The bank will loan her the money at 9% interest and her $10,000 she is taking out of the bank was earning 5% on a certificate of deposit. Her tax rate is 40%. Further, the information she provided you after she had completed her research is the following:
After all expenses are paid, Susan plans on losing $5,000 the first year. However, she plans on having a positive cash flow of $10,000 in year 2, $10,000 in year 3, $20,000 in year 4, and $30,000 in year 5.
Find the weighted average cost of capital, and solve for NPV and IRR. State if the project should be accepted and if Susan should start the business, why or why not?
11. Record the following cash flows on the timeline from the capital budgeting scenario:
Management wants to streamline operations and combine two departments. In doing so, they will save $10,000 per year on the office rent they normally pay for one of the departments staff. Further, they will be able to eliminate 4 employees salary who make $50,000 per year. Although, management will increase the salary of 2 employees who will have more responsibilities by $20,000 per year. How much savings will be each year over the next 5 years? (write each item on a timeline)
12. Solve for the following multiple cash flow problem. Year 1= $20,000, Year2= $10,000, Year 3= $40,000, Year 4= $10,000, Year 5= $20,000. At an interest rate of 8%, compounded annually, what is the cash flow streams value today?
13. Find WACC with the following data. Cost of Capital is 6%, Required Rate of Return is 3%. Tax rate is 30%, The project cost is $100,000 and the amount financed is $50,000.
14. Which car loan is a better deal?
Option 1: Price of car $25,000 Price of car $27,000
Interest rate 6.9% interest rate 1.9%
Term of loan: 5 years Term of loan: 7 years
Payment: ? Payment: ?
Which loan is a better deal? Why?
Asked by Christian 4 days ago 34 minutes left to answer.
1. The correct answer is c. Internal Rate of Return. To determine the Internal Rate of Return, you need to calculate the discount rate at which the net present value (NPV) of a project is equal to zero.
2. The correct answer is b. The Weighted Average Cost of Capital (WACC) indicates the interest rate that is the required rate of return demanded by investors. It represents the average interest rate a company must pay on its debt and equity to finance its operations.
3. The correct answer is b. $10,000. When the interest rate is zero, the present value of a future sum of money remains the same. Therefore, $10,000 in the future is worth the same amount in today's value.
4. The correct answer is c. PV stands for Present Value, which represents the current value of future cash flows. FV stands for Future Value, which represents the value of an investment at a specific point in the future.
5. To determine the interest rate of a loan given the provided data, you can use the loan payment formula and solve for the interest rate. This requires rearranging the formula to solve for the interest rate. However, the information provided is incomplete for this calculation.
6. When using the CFj key on a calculator, you should use it to input the cash flows for each period in a financial calculation. Typically, you would input the cash flows, calculate NPV or IRR, and use these results to make decisions about the project.
7. To find the Weighted Average Cost of Capital (WACC), you need to calculate the weighted average of the cost of equity and the cost of debt. The equity portion should be weighted by its respective percentage, and the debt should be weighted by one minus the tax rate.
8. To solve the lump sum problem, you can use the formula for compound interest: FV = PV * (1 + r/n)^(n*t), where FV is the future value, PV is the present value, r is the interest rate, n is the number of times compounded per period, and t is the number of periods.
9. To solve for the payment in an annuity problem, you can use the formula for the present value of an annuity: PV = C * (1 - (1+r/n)^(-n*t)) / (r/n), where PV is the present value, C is the payment, r is the interest rate, n is the number of times compounded per period, and t is the number of periods.
10. To find the Weighted Average Cost of Capital (WACC), you need to calculate the weighted average of the cost of equity and the cost of debt. The cost of equity is calculated using the dividend discount model, and the cost of debt is calculated using the interest rate on borrowing. To solve for NPV and IRR, you can calculate the present value of the cash flows and use them to determine if the project should be accepted.
11. To record the cash flows on the timeline, you should write each item on the corresponding year of the timeline. For example, the savings on office rent of $10,000 would go in each year, and the salary savings and salary increase would also go in their respective years.
12. To calculate the value of a multiple cash flow stream today, you need to discount each cash flow back to the present value using the formula: PV = C1/(1+r)^n + C2/(1+r)^n + ... + Cn/(1+r)^n, where PV is the present value, C1, C2, ... Cn are the cash flows in each period, r is the interest rate, and n is the number of periods.
13. To find the Weighted Average Cost of Capital (WACC), you need to calculate the weighted average of the cost of equity and the cost of debt. The cost of equity is calculated using the required rate of return, and the cost of debt is calculated using the interest rate on borrowing. The amount financed should be weighted by its respective percentage.
14. To determine which car loan is a better deal, you should calculate the total amount paid over the loan term for each option. Compare the total payment amount, including both the principal and interest, for each loan. The loan with the lower total payment amount would be the better deal.