Answer Sheet: Test Final Exam-41 Answer Sheet-v1.xlsxDownloa…
Answer Sheet: Test Final Exam-41 Answer Sheet-v1.xlsxDownload Test Final Exam-41 Answer Sheet-v1.xlsx Question 1. Fernando Zapetero, who recently won $20,000 in the lottery, wants to buy a car in five years. Fernando estimates that the car will cost $32,210 at that time. His cash flows are displayed in Figure 4.7. What interest rate must he earn to be able to afford the car? Figure 4.7 Cash Flows for Purchase of Car: Question 2. Katharina Lewellen invested $1,000 at a continuously compounded rate of 10 percent for one year. What is the value of her wealth at the end of one year? Question 3. Mark Young has won the state lottery, paying $50,000 a year for 20 years. He is to receive his first payment a year from now. The state advertises this as the Million Dollar Lottery because $1,000,000 = $50,000 x 20. If the discount rate is 8 percent, what is the present value of the lottery? Question 4. Stanley Jaffe and Sherry Lansing have purchased the rights to Corporate Finance: The Motion Picture. They will produce this major motion picture on either a small budget or a large budget. Here are the estimated cash flows: Because of high risk, a 25 percent discount rate is considered appropriate. Sherry wants to adopt the large budget because the NPV is higher. Stanley wants to adopt the small budget because the IRR is higher. (a) Who is right? (b) How can Sherry justify the large budget to Stanley using the IRR approach? *** Good Luck! ***
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