Unit 4

Question 1

Time Value of Money

Answer 1

FN Chapt 5

Question 2

Pv of Growing Annuity

Answer 2

PMT x {1/(R-G) - 1/(R-G) X (1.G/1.R)^N}
R= Discount rate
G = Growth rate
N = # of periods

Question 3

Effective Annual Rate
EAR

Answer 3

{(1+R/N)^n-1} -1

Question 4

What is the Fisher Effect rate for Inflation

Answer 4

(1+inflation rate) x (1+real rate of return) = (1 + nominal rate of return)

Question 5

Marginal Cost of Capital

Question 6

Marginal Cost of Equity (R e) - After floatation cost

Answer 6

R e ={ Risk free return + (Beta x mkt risk premium)}
/
(1-f)

f = percentage after tax floatation cost

Question 7

Marginal Cost of Equity (R e) - After floatation cost, with growth rate

Answer 7

(Div/MPrice) + growth rate

Div = Div (1+ growth rate)

MPrice = market price x floatation rate
Floatation rate(1-tax) = A
mkt price (1-A ) = MPrice