Questions from Corporate Finance

Q: You are serving on a jury. A plaintiff is suing the

You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff i...

Q: M.V.P. Games, Inc., has hired

M.V.P. Games, Inc., has hired you to perform a feasibility study of a new video game that requires a $7 million initial investment. M.V.P. expects a total annual operating cash flow of $1.3 million fo...

Q: Another utilization of cash flow analysis is setting the bid price on

Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price repres...

Q: You are looking at a one-year loan of $10

You are looking at a one-year loan of $10,000. The interest rate is quoted as 8 percent plus three points. A point on a loan is simply 1 percent (one percentage point) of the loan amount. Quotes simil...

Q: Two banks in the area offer 30-year, $200

Two banks in the area offer 30-year, $200,000 mortgages at 5.3 percent and charge a $2,400 loan application fee. However, the application fee charged by Insecurity Bank and Trust is refundable if the...

Q: This problem illustrates a deceptive way of quoting interest rates called add

This problem illustrates a deceptive way of quoting interest rates called add-on interest. Imagine that you see an advertisement for Crazy Judy’s Stereo City that reads something like this: “$1,000 In...

Q: Your Christmas ski vacation was great, but it unfortunately ran a

Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $10,000 balance from your current credit car...

Q: In each of the following cases, find the unknown variable.

In each of the following cases, find the unknown variable. Ignore taxes.

Q: A useful rule of thumb for the time it takes an investment

A useful rule of thumb for the time it takes an investment to double with discrete compounding is the “Rule of 72.” To use the Rule of 72, you simply divide 72 by the interest rate to determine the nu...

Q: A corollary to the Rule of 72 is the Rule of 69

A corollary to the Rule of 72 is the Rule of 69.3. The Rule of 69.3 is exactly correct except for rounding when interest rates are compounded continuously. Prove the Rule of 69.3 for continuously comp...