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In general, a dollar received today is more valuable than a dollar received one year from now. We can invest the dollar we have today to earn interest so that at the end of one year we will have more than one dollar. It’s crucial to look at the value in today’s dollar of a sum of money to be received in the future. This helps us determine the desirability of investment projects. The fact that there is no payment due for the next six months PLUS free interest may drive customers to purchase products or services. Though sales may increase in the short run, the rate of bad debts could potentially increase.
Fortunately, when customers pay companies up front for a specific product or service, the monetary value of cash received would be worth more than money paid off over time in separate smaller installments. Cash received from customers now can be invested right away, giving companies additional time to make up for the discount previously given. Ultimately, the company is getting a good deal for the small monetary loss of a special offer promotion.
I would potentially use present value calculations to determine if I am really getting a good deal on my purchase: PV= [1/(1+r)^n]
According to the Capital Asset Pricing Model, what measures the amount of risk that an individual stock contributes to a well-diversified portfolio? Define this measurement.
The growth rate for the firm's common stock is 7%. The firm's preferred stock is paying an annual dividend of $5. What is the preferred stock price if the required rate of return is 8%?
Imagine what the financial world would like look in both the U.S. and in the world if the Federal Reserve did not exist. Provide support for your rationale.
Corporate income tax/ Meyer Inc has taxable income (earnings before taxes) of 300,000. Calcualte Meyer's federal income tax liability using the tax table . What are the firm's average and marginal taxes?
Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions: the investors required rate of return 13%. the stock price using the P/E ratio valuation method is $. The stock price using the dividen..
(Cost of preferred stock) the preferred stock of Gator Industries sells for $35.84 and pays $2.75 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 519,000 more preferred shares just like the ones it current..
The one-year futures price on a particular stock-index portfolio is 406, the stock index currently is 400, the one-year risk-free interest rate is 3%, and the year-end dividend that will be paid on a $400 investment in the index portfolio is $5. Give..
Consider an asset that costs $664,000 and is depreciated straight-line to zero over its eight-year tax life. The asset is to be used in a five-year project; at the end of the project, the asset can be sold for $178,000. If the relevant tax rate is 35..
Why is the NPV considered to be theoretically superior to all other capital budgeting techniques? Reconcile this result with the prevalence of the use of IRR in practice. How would you respond to your CFO if she instructed you to use the IRR techniqu..
Audit standards indicate that there is a presumption that auditors will confirm accounts receivable unless the balance is immaterial, confirmations are deemed ineffective, or the auditors' assessment of risk is low and other procedures will achieve t..
The design of the Federal Reserve System was to ____. Banks that are required to join the Federal Reserve System are ___ banks and those banks that may elect to join are ___ banks. ____ costs can hinder the flow of funds to people with productive inv..
Assume market interest rates have risen substantially in the 5 years since an investor purchased Treasury bonds that were offering a 6% return over their 15-year life. If the investor sells now he or she is likely to realize a total return that is:
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