Find the following values for a lump sum:
The future value of $500 invested at 8 percent for one year
The future value of $500 invested at 8 percent for five years
The present value of $500 to be received in one year when the opportunity cost rate is 8 percent
The present value of $500 to be received in five years when the opportunity cost rate is 8 percent
What is the effective annual rate (EAR) if the stated rate is 8 percent and compounding occur semiannually? Quarterly?
Find the following values assuming a regular, or ordinary, annuity:
The present value of $400 per year for ten years at 10 percent
The future value of $400 per year for ten years at 10 percent
The present value of $200 per year for five years at 5 percent
The future value of $200 per year for five years at 5 percent
Consider the following uneven cash flow stream:
Year Cash Flow
Consider another uneven cash flow stream:
Year Cash Flow
account that pays 10 percent annually?
at the end of Year 5? (Assume that the cash flows for Years 1 through 5 remain the same.)
management decisionssuch as bond refunding, capital investment, and lease versus buyinvolve
discounting projected future cash flows. What factors must executives consider when choosing a
discount rate to apply to forecasted cash flows?
What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7 percent?
Suppose that interest rates doubled in the economy and the appropriate discount rate is now 14 percent.
What would happen to the present value of the perpetuity?
An investment that you are considering promises to pay $2,000 semiannually for the next two years,
beginning six months from now. You have determined that the appropriate opportunity cost (discount)
rate is 8 percent, compounded quarterly. What is the present value of this investment?
Consider the following investment cash flows:
Year Cash Flow
Epitome Healthcare has just borrowed $1,000,000 on a five-year, annual payment term loan at a 15
percent rate. The first payment is due one year from now. Construct the amortization schedule for this
Consider the following probability distribution of returns estimated for a proposed project that involves a new ultrasound machine:
State of the Probability Rate of
economy of occurrence return
Very poor 0.1 -10%
Poor 0.2 0%
Average 0.4 10%
Good 0.2 20%
Very good 0.1 30%
A few years ago, the Value Line Investment Survey reported the following market betas for the stocks of
selected healthcare providers:
Quorum Health Group 0.90
Beverly Enterprises 1.20
HEALTHSOUTH Corporation 1.45
United Healthcare 1.70
At the time these betas were developed, reasonable estimates for the risk-free rate, RF, and the required rate of return on the market, R(Rm), were 6.5 percent and 13.5 percent, respectively.
portfolio. Are the required rates of return calculated above applicable to the investment? Explain your
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