Reference no: EM133527575

Question 1: Why is the Net present value (NPV) decision rule the most recommended in the finance profession and why are projects with the highest NPV chosen?

Question 2: Define the time value of money principle, explaining how it works, and construct at timeline for the following: You must pay off a loan for a new car of $18,000 over the next 3 years.

Question 3: Define the three rules of time travel and discuss why they are important. How can you use them to compare and combine cash flows?

Question 4: Compute the n-period effective annual rate in the following problem and give the best answer: Tim plans to open a new bank account and calls several banks to find out where he can earn the most interest on his money. After talking with several banks, Tim has three options. Which bank account should he choose to earn the highest return on his money?

• 8% compounded daily
• 8.25% compounded quarterly
• 8.4% compounded annually

Question 5: Apply the valuation principle to the following situation and make an argument for the best opportunity:
You are a financial manager for a wholesale children's toy distributor. The suppliers are from China, Japan, and the Netherlands. A customer offers $14 million for a 1000 lb shipment. Buying the particular shipment the customer wishes to purchase from China would cost you $9 million plus shipping costs of $125.00 per pound. Japan offers to sell you the same shipment for a flat rate of $9,090,000. From the Netherlands, you can buy the same shipment for $ 9,050,000 plus shipping of $95.00 per pound.

• Explain why Treasury securities are considered risk free, and describe the impact of default risk on interest rates.