### Free Educational Resources

• > FINC 600 Week 2 Assignment Homework Problems
+

# FINC 600 Week 2 Assignment Homework Problems

##### Rating:
(0)
Author: Dannie Young
##### Description:

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.

(more)
##### Try a College Course Free

Sophia’s self-paced online courses are a great way to save time and money as you earn credits eligible for transfer to over 2,000 colleges and universities.*

No credit card required

26 Sophia partners guarantee credit transfer.

226 Institutions have accepted or given pre-approval for credit transfer.

* The American Council on Education's College Credit Recommendation Service (ACE Credit®) has evaluated and recommended college credit for 21 of Sophia’s online courses. More than 2,000 colleges and universities consider ACE CREDIT recommendations in determining the applicability to their course and degree programs.

Tutorial