The more frequently interest is compounded, the larger will be the final or terminal
amount.
Higher rates of interest are associated with greater present values.
1X = $200,000
X = $200,000 / 4.1 = $48,780
The person may withdraw over $48,778 annually for five years. (PV = -200000; N = 5;
FV = 0; I = 7; PMT = ?
Investors are protected from failures of brokerage firms by the Securities Investor
Protection Corporation.
Speculators reduce risk of loss by buying instead of selling stock index futures.
If inventory is sold on credit, the quick ratio declines.
A firm could buy an asset for $20,000 by borrowing the funds at 10 percent for four
years with interest paid annually and the entire loan repaid at maturity. The firm could
lease the equipment for $5,800 a year including maintenance. If the firm does buy,
maintenance will be $600 a year. The estimated after-tax salvage value is $1,250, and
depreciation will be $5,000 annually. Construct projected cash outflows for each
alternative for each year. Assume a 30 percent income tax rate. Is leasing the better
alternative if the firm uses a cost of funds of 10 percent?
The shares of closed-end investment companies generally sell for a premium and rarely
sell for a discount from their net asset value.
Selling short-term government securities and using the funds to purchase inventory
reduces the current ratio.
The document stating the terms of a bond is the indenture.
If the cost of capital exceeds the internal rate of return, the firm should not make the
investment.
The faster an investment recoups it initial costs is an argument to make the investment
according to the payback method of selecting investments.
If the industry days sales outstanding is 65 days and a firm with sales of $1,034,550 has
receivables of $268,700, how much in interest expense could the firm save if the
receivables turn over as quickly as the industry average and the cost of carrying the
receivables is 9%?
Retained earnings represents the earnings accumulated by the firm over its life.