公司理财全书课后答案及人大金融考研(2)

4.3 · What is a stated annual interest rate?

The stated annual interest rate is the annual interest rate without consideration of compounding.

· What is an effective annual interest rate?

An effective annual interest rate is a rate that takes compounding into account.

· What is the relationship between the stated annual interest rate and the effective annual interest rate?

Effective annual interest rate = (1 + (r/m) )m - 1.

· Define continuous compounding.

Continuous compounding compounds investments every instant.

4.4 · What are the formulas for perpetuity, growing-perpetuity, annuity, and growing annuity? Perpetuity: PV = C/r

Growing Perpetuity: PV = C/(r-g) Annuity: PV = (C/r) [1-1/(1+r)T]

Growing Annuity: PV = [C/(r-g)] [1-((1+g) / (1+r))T ]

· What are three important points concerning the growing perpetuity formula? 1. The numerator.

2. The interest rate and the growth rate. 3. The timing assumption.

· What are four tricks concerning annuities? 1. A delayed annuity. 2. An annuity in advance 3. An infrequent annuity

4. The equating of present values of two annuities. CONCEPT QUESTIONS - CHAPTER 5

5.2 · Define pure discount bonds, level-coupon bonds, and consols.

A pure discount bond is one that makes no intervening interest payments. One receives a single lump sum payment at maturity. A level-coupon bond is a combination of an annuity and a lump sum at maturity. A consol is a bond that makes interest payments forever.

· Contrast the state interest rate and the effective annual interest rate for bonds pang semi-annual interest.

Effective annual interest rate on a bond takes into account two periods of compounding per year received on the coupon payments. The state rate does not take this into account.

5.3 · What is the relationship between interest rates and bond prices?

There is an inverse relationship. When one goes up, the other goes down.

· How does one calculate the eld to maturity on a bond?

One finds the discount rate that equates the promised future cash flows with the price of the bond.

5.8 · What are the three factors determining a firm's P/E ratio? 1. Today's expectations of future growth opportunities. 2. The discount rte. 3. The accounting method.

5.9 · What is the closing price of General Data? The closing price of General Data is 6 3/16.

· What is the PE of General House? The PE of General House is 29.

· What is the annual dividend of General Host? The annual dividend of General Host is zero.

CONCEPT QUESTIONS - Appendix to Chapter 5

· What is the difference between a spot interest rate and the eld to maturity?

The eld to maturity is the geometric average of the spot rates during the life of the bond.

· Define the forward rate.

Given a one-year bond and a two-year bond, one knows the spot rates for both. The forward rate is the rate of return implicit on a one-year bond purchased in the second year that would equate the terminal wealth of purchasing the one-year bond today and another in one year with that of the two-year bond.

· What is the relationship between the one-year spot rate, the two-year spot rate and the forward rate over the second year?

The forward rate f2 = [(1+r2)2 /(1+r1 )] - 1

· What is the expectation hypothesis?

Investors set interest rates such that the forward rate over a given period equals the spot rate for that period.

What is the liquidity-preference hypothesis?

This hypothesis maintains that investors require a risk premium for holding longer-term bonds (i.e. they prefer to be liquid or short-term investors). This implies that the market sets the forward rate for a given period above the expected spot rate for that period.

CONCEPT QUESTIONS - CHAPTER 6

6.2 · List the problems of the payback period rule. 1. It does not take into account the time value of money. 2. It ignores payments after the payback period. 3. The cutoff period is arbitrary.

· What are some advantages? 1. It is simple to implement.

2. It may help in controlling and evaluating managers.

6.4 · What are the three steps in calculating AAR? 1. Determine average net income. 2. Determine average investment

3. Divide average net income by average investment.

· What are some flaws with the AAR approach? 1. It uses accounting figures. 2. It takes no account of timing. 3. The cutoff period is arbitrary.

6.5 · How does one calculate the IRR of a project?

Using either trial-and-error or a financial calculator, one finds the discount rate that produces an NPV of zero.

6.6 · What is the difference between independent projects and mutually exclusive projects?

An independent project is one whose acceptance does not affect the acceptance of another. A mutually exclusive project, on the other hand is one whose acceptance precludes the acceptance of another.

· What are two problems with the IRR approach that apply to both independent and mutually exclusive projects?

1. The decision rule depends on whether one is investing of financing. 2. Multiple rates of return are possible.

· What are two additional problems applng only to mutually exclusive projects? 1. The IRR approach ignores issues of scale.

2. The IRR approach does not accommodate the timing of the cash flows properly.

6.7 · How does one calculate a project's profitability index?

Divide the present value of the cash flows subsequent to the initial investment by the initial investment.

· How is the profitability index applied to independent projects, mutually exclusive projects,

and situations of capital rationing?

1. With independent projects, accept the project if the PI is greater than 1.0 and reject if less than 1.0.

2. With mutually exclusive projects, use incremental analysis, subtracting the cash flows of project 2 from project 1. Find the PI. If the PI is greater than 1.0, accept project 1. If less than 1.0, accept project 2.

3. In capital rationing, the firm should simply rank the projects according to their respective PIs and accept the projects with the highest PIs, subject to the budget constrain. CONCEPT QUESTIONS - CHAPTER 7

7.1 · What are the three difficulties in determining incremental cash flows? 1. Sunk costs. 2. Opportunity costs 3. Side effects.

· Define sunk costs, opportunity costs, and side effects.

1. Sunk costs are costs that have already been incurred and that will not be affected by the decision whether to undertake the investment.

2. Opportunity costs are costs incurred by the firm because, if it decides to undertake a project, it will forego other opportunities for using the assets.

3. Side effects appear when a project negatively affects cash flows from other parts of the firm.

7.2 · What are the items leading to cash flow in any year?

Cash flow from operations (revenue-operating costs-taxes) plus cash flow of investment (cost of new machines + changes in net working capital + opportunity costs).

· Why did we determine income when NPV Analysis discounts cash flows, not income? Because we need to determine how much is paid out in taxes.

· Why is working capital viewed as a cash outflow?

Because increases in working capital must be funded by cash generated elsewhere in the firm.

7.3 · What is the difference between the nominal and the real interest rate? The nominal interest rate is the real interest rate with a premium for inflation.

· What is the difference between nominal and real cash flows? Real cash flows are nominal cash flows adjusted for inflation.

7.4 · What is the equivalent annual cost method of capital budgeting?

The decision as to which of various mutually exclusive machines to buy is based on the equivalent annual cost. The EAC is determined by dividing the net present value of costs by an annuity factor that has the same life as the machines. The machine with the lowest EAC should be acquired.

· Can you list the assumptions that we must to use EAC? 1. All machines do the same job.

2. They have different operating costs and lives 3. The machine will be indefinitely replaced.

CONCEPT QUESTIONS - CHAPTER 8

8.1 · What are the ways a firm can create positive NPV. 1. Be first to introduce a new product.

2. Further develop a core competency to product goods or services at lower costs than competitors.

3. Create a barrier that makes it difficult for the other firms to compete effectively. 4. Introduce variation on existing products to take advantage of unsatisfied demand 5. Create product differentiation by aggressive advertising and marketing networks. 6. Use innovation in organizational processes to do all of the above.

· How can managers use the market to help them screen out negative NPV projects?

8.2 · What is a decision tree?

It is a method to help capital budgeting decision-makers evaluating projects involving sequential decisions. At every point in the tree, there are different alternatives that should be analyzed.

· What are potential problems in using a decision tree?

Potential problems 1) that a different discount rate should be used for different branches in the tree and 2) it is difficult for decision trees to capture managerial options.

8.3 · What is a sensitivity analysis?

It is a technique used to determine how the result of a decision changes when some of the parameters or assumptions change.

· Why is it important to perform a sensitivity analysis?

Because it provides an analysis of the consequences of possible prediction or assumption errors.

· What is a break-even analysis?

It is a technique used to determine the volume of production necessary to break even, that is, to cover not only variable costs but fixed costs as well.

· Describe how sensitivity analysis interacts with break-even analysis.

Sensitivity analysis can determine how the financial break-even point changes when some factors (such as fixed costs, variable costs, or revenue) change.

百度搜索“77cn”或“免费范文网”即可找到本站免费阅读全部范文。收藏本站方便下次阅读，免费范文网，提供经典小说综合文库公司理财全书课后答案及人大金融考研(2)在线全文阅读。