a lump sum assuming annual compounding

a lump sum assuming annual compounding

9.1 find the following values for a lump sum assuming annual compounding ?
a. the future value of $500 invested at 8 percent for one year.
b. the future value of $ 500 invested at 8 percent for five years.
c. the percent value of $ 500 to be received in one year when the opportunity cost rate is 8 percent.
9.2. Repeat problem 9.1 above, but assume the following compounding conditions:
a. semiannual
b. quarterly.
9.7. Consider another uneven cash flow stream:
year cash flow

0 $ 2,000
1 2,000
2 0
3 1,500
4 2,500
5 4,000
a. what is the percent ( year 0) value of the cash flow stream if the opportunity cost rate is 10 percent.
b. what is the future (year 5) value of the cash flow stream if the cash flows are invested in an account that pays 10 percent annually.
c. what cash flow today ( year 0), in lieu of the 2,000 cash flow, would be needed to accumulate $20,000 at the end of year 5. ( assume that the cash flows for years 1 through 5 remain the same.)
d. time value analysis involves either discounting or compounding cash flows. many healthcare financial management decisions such as bond refunding, capital investments, and lease versus buy involve discounting projected future cash flows. what factors must executives consider when choosing a discount rate to apply to forecasted cash flow.
9.11. consider the following investment cash flow.

year cash flow.
o ( $1,000)
1 250
2 400
3 500
4 600
5 600

a. what is the return expected on this investment measured in dollar terms if the opportunity cost rate is 10 percent.
b. provide an explanation, in economic terms, or your answer.
c. what is the return on this investment measured in percentage terms.
d. should this investment be made. explain your answer.
10.1 consider the following probability distributions of returns estimated for a proposed project that involves a new ultrasound machine:

state of the economy. probability of occurrence rate of return.

very poor. 0.10 -10.0 %
poor. 0.20 0.0
average 0.40 10.0
good. 0.20 20.0
very good. 0.10 30.0
a. what is the expected rate of return on the project.
b. what is the project’s standard deviation of returns.
c. what is the project’s coefficient of variation ( cv) of returns.
d. what type of risk do the standard deviation and cv measure.
e. in what situation is the risk relevant.
10.2. suppose that a person won the Florida lottery and was offered a choice of two prizes: (1) $ 500,000 or (2) a coin-toss gamble in which he or she would get $1 million for heads and zero for tails.

a. what is the expected dollar return on the gamble.
b. would the person choose the sure $ 500,000 or the gamble.
c. if she chooses the sure $500, 000, is the person a risk averter or a risk seeker.
10.5 Several years ago, the value line investment survey reported the following market betas for the stocks of selected healthcare providers:
company beta.

quorum health group. 0.90

Beverly enterprises 1.20

Healthcare corporation 1.45

United healthcare. 1.70
at the time these betas were developed, reasonable estimates for the risk free- rate, RF, and required rate of return on the market, R(Rm), were 6.5 percent and 13.5 percent respectively.

a. what are the required rates of return on the four stocks.

b. why do their required rates of return differ.

c. suppose that a person is planning to invest in only one stock rather than a well- diversified stock portfolio. are the required rates of return calculated above applicable to the investment. explain your answer.

 

project amount invested corporate beta. marker beta.

walk in clinic $ 500,000 1.5 1.1

MRI facility 2,000,000 1.2 1.5
Clinical laboratory 1,500,000 0.9 0.8

X-ray laboratory 1,000,000 0.5 1.0

$5,000,000

 

a. why do the corporate and market betas differ for the same project.

b. what is the overall corporate beta of apex health services. is the calculated beta consistent with corporate risk theory.

c. what is the overall market beta of apex health service.

d how does the riskiness of apex’s stock compare with the riskiness of an average stock.

e. would stock investors require a rate return on apex that is greater than, less than, or the same as the return on an average- risk stock.
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