Question

Explain why we can use the present value of a no-growth perpetuity to quickly estimate the value of a relatively long-lived, no-growth financial asset. Make sure you provide a mathematical example.

Answer #1

Discuss how we can use the Dividend (Gordon) Growth model to
indicate the intrinsic value of company shares. Be sure to provide
as part of this discussion certain assumptions we can make
regarding the growth and the required rate of return to be used in
this analysis and limitations of utilizing this model for valuation
purposes.

f we use the "growing perpetuity value" approach to calculate
the terminal value, we
A.
All of these answers are correct.
B.
must assume that the terminal growth rate of free cash flows is
less than the asset cost of capiptal.
C.
must use the formula TV = FCFn/RA .
D.
typically assume a relativley high terminal growth for free cash
flows.

True False Questions
1.
We can calculate the present value of perpetuity by dividing the
annual cash inflow by the required
interest rate.
2.
Capital budgeting can be defined as analyzing alternative long-term
investments and deciding which
which assets may be acquired.
3.
Limited funds being available for investment purposes is never a
consideration in firm
making an investment decision..
4.
In the investment decision making process, the time value of money
should be given
consideration..

Present Value of a Perpetuity implies that
A.
the payments will last until the life expectancy of the
recipient
B.
you have to determine the present value of the payments that
will last indefinitely
C.
we are dealing exclusively with a preferred stock which makes
dividend payments indefinitely
D.
we are indulging in a fantasy because no one makes payments
forever
E.
one can obtain the correct answer by using the following simple
formula: PV=PMT (1+r)

Explain present and future value. Provide examples of the use of
present value techniques in accounting.

Can I use OLS to estimate this model? Please explain why or why
not.

1. Please explain the concept of Present Value and Future Value.
Why would you think these calculations are important?
2. What is the Net Present Value of an investment? Why is this
important to understand? Why Use Net Present Value?

Why might a company estimate ending inventory instead of
performing a physical count?
The mathematical estimates can determine if inventory has been
lost.
The mathematical estimates are more accurate than 'doing
inventory.'
The mathematical estimates take less time and are all acceptable
under GAAP.
The mathematical estimates result in greater job security for
accounting staff.
When can we NOT use the ending inventory estimate from the gross
profit method?
When performing a quick check of reporting inventory as an
auditor....

Please provide a real-life example of what you learned. It can
be a present value, future value, number of periods, interest rate
(growth rate), or payment problem. You need to state the problem
and then solve the problem. The problem has to come from our daily
life as a student

Please provide a real-life example of what you learned. It can
be a present value, future value, number of periods, interest rate
(growth rate), or payment problem. You need to state the problem
and then solve the problem. The problem has to come from our daily
life as a student

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