Suppose the​ risk-free interest rate is 4.0%.

Suppose the​ risk-free interest rate is 4.0%.

a. Having $200 today is equivalent to having what amount in one​ year?

b. Having  $200 in one year is equivalent to having what amount​ today?

c. Which would you​ prefer, $200 today or $200 in one​ year?

Does your answer depend on when you need the​ money? Why or why​ not?

a. Having $200 today is equivalent to having what amount in one​ year?

Having $200 today is equivalent to having in one year.​(Round to the nearest​ cent.)

$                     

b. Having $200 in one year is equivalent to having what amount​ today?

Having $200 in one year is equivalent to having today. ​(Round to the nearest​ cent.)

​$

c. Which would you​ prefer,  $200  today or $200 in one year?​(Select the best choice​ below.)

A.     $ 200 today

B.     $200 in one year

Does your answer depend on when you need the​ money? Why or why not?​(Select the best choice​ below.)

A. ​No, because if you​ didn't need it then the $200 can be invested and you could have more than $200 in one year.

B. ​Yes, because if you did need the money today it is more valuable than $200.

C. ​Yes, because if you​ didn't need​ it, it's not worth $200.

D. ​No, because if you did need it you could borrow the $200.

Click to select your answer(s).

TUTORIAL PREVIEW

Rate =	4%
Nper =	1

File name:  suppose the risk free rate.xlsx      File type: docx  PRICE: $4

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You have been offered a unique investment opportunity. If you invest $20,000 ​today

You have been offered a unique investment opportunity. If you invest $20,000 ​today, you will receive $1,000 one year from​ now, $3,000 two years from​ now, and $20,000 ten years from now.

a. What is the NPV of the investment opportunity if the interest rate is 12% per​ year? Should you take the​opportunity?

b. What is the NPV of the investment opportunity if the interest rate is 8% per​ year? Should you take the opportunity?

SOLUTION PREVIEW

a.
Year	Cash flow	PV@12%
0	-20,000	($20,000.00)
1	1,000	$892.86

File name:  You have been offered.xls      File type: xls  PRICE: $5

You run a construction firm. You have just won a contract to build

You run a construction firm. You have just won a contract to build a government office building. Building it will take one year and require an investment of $10 million today and $5 million in one year. The government will pay you $20 million upon the building’s completion. Suppose the cash flows and their times of payment are certain, and the risk-free interest rate is 10%.

a. What is the NPV of this opportunity?

b. How can your firm turn this NPV into cash today?

SOLUTION PREVIEW

NPV  =	PV Benefits -  PV Cost
PV Benefits:
Rate =	10%
Nper =	1
FV =	-20

File name:  You run a construction firm.xls      File type: xls  PRICE: $6

What is the present value of $6,000 paid at the end of each of the next 87 years

What is the present value of $6,000 paid at the end of each of the next 87 years if the interest rate is 10% per​ year?

The present value is

$                                        nothing.

SOLUTION PREVIEW

​(Round to the nearest​ dollar.)
Rate =	10%

File name:  What is the present value of $6,000.xls      File type: xls  PRICE: $1

What is the present value of $3,000 received

What is the present value of $3,000 received

a. 10 years from today when the interest rate is 8% per​ year?

b. 20 years from today when the interest rate is 16% per​ year?

c. 5 years from today when the interest rate is 4% per​ year?

SOLUTION PREVIEW

a.
Rate =	8%
Nper =	10

File name:  What is the present value of $3,000 received.xls     File type: xls  PRICE: $3

On April 1, Wonder Travel Agency Inc. was established. These transactions

On April 1, Wonder Travel Agency Inc. was established. These transactions were completed during the month.

1. Stockholders invested $30,000 cash in the company in exchange for common stock.

2. Paid $900 cash for April office rent.

3. Purchased office equipment for $3,400 cash.

4. Purchased $200 of advertising in the Chicago Tribune, on account.

5. Paid $500 cash for office supplies.

6. Performed services worth $12,000. Cash of $3,000 is received from customers, and the balance of $9,000 is billed to customers on account.

7. Paid $400 cash dividend.

8. Paid Chicago Tribune amount due in transaction (4).

9. Paid employees’ salaries $1,800.

10. Received $9,000 in cash from customers billed previously in transaction (6).

Instructions

(a) Prepare a tabular analysis of the transactions using these column headings: Cash, Accounts Receivable, Supplies, Equipment, Accounts Payable, Common Stock, and Retained Earnings (with separate columns for Revenues, Expenses, and Dividends). Include margin explanations for any changes in Retained Earnings.

(b) From an analysis of the Retained Earnings columns, compute the net income or net loss for April.

TUTORIAL PREVIEW

(a)                                                                                                  

WONDER TRAVEL AGENCY INC.

Assets

=

Liabilities

+

Stockholders’ Equity

Cash

+

Accounts Receivable

+

Supplies

+

Office Equipment

=

Accounts Payable

+

Common Stock

+

Retained Earnings

Revenues

–

Expenses

–

Dividends

1.

$30,000

+$30,000

2.

–900

–$900

Rent Expense

File name:  WONDER TRAVEL AGENCY INC.doc     File type: docx  PRICE: $8