What rate of return should be used to compute the NPV of a proposed purchase of Smiley's, an operating business?

A: A discount rate equal to Smiley's current return on equity

B: The discount rate applicable to other investments with similar risks

C: A discount rate equal to Smiley's net profit percentage

D: The rate of interest charged by a bank for a loan similar in size to the cost of the purchase

E: discount rate that makes the NPV of the proposed purchase positive

4) Leo received $7,500 today and will receive another $5,000 two years from today. If he invests these funds immediately at 11.5 percent, what will his investments be worth five years from now?

A: $18,758.04

B: $18,806.39

C: $19,856.13

D; $20,314.00

E; $19,904.36

6) Scott has been offered an employment contract for ten years at a starting salary of $65,000 with guaranteed annual raises of 5 percent. What is the current value of this offer at a discount rate of 7 percent?

A: $638,724.17

B: $602,409.91

C: $558,845.85

D: $630,500.00

E: $525,000.00

13)Angela borrowed $5,000 for five years at an APR of 6.2 percent. The loan calls for equal, annual principal payments. Interest will also be paid annually. What will be her loan payment in Year 2?

A: $1,248

B: $1,310

C: $1,016

D: $1,274

E: $1,157

15) Jeff owns a perpetuity that will pay $1,500 a year, starting one year from now. He offers to sell you all the payments remaining after the first 25 payments have been paid. What price should you offer him today for payments 26 onward if the discount rate is 8 percent? What does your offer price illustrate about the value of perpetuities?

Answer rating: 100% (QA)

1 B The discount rate applicable to other investments with similar risks Explanation i The discount ... View the full answer