Which Term Applies to a Set of Cash Flows That

question 57

Multiple Choice

Which term applies to a set of cash flows that are finite in number and increase in amount at a steady rate?

• A)Perpetuity
• B)Growing annuity
• C)Growing perpetuity
• D)Annuity
• E)Lump sum payment

Apply the cost of capital concepts, including the weighted average cost of capital (WACC), in project evaluation.

Understand and calculate the cost of equity and debt financing.

Evaluate the effect of a project's risk on its required rate of return and capital cost.

Apply the dividend growth model to determine stock prices.

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Definitions:

COGS

Cost of Goods Sold represents the direct costs associated with the production of the goods sold by a company.

Line of Credit

A flexible loan arrangement with a financial institution that allows a borrower to draw funds up to a specified limit at any time.

Compensating Balance

A minimum bank account balance that a borrower must maintain as a condition for some types of loans and lines of credit.

Effective Annual Interest Rate

The interest rate that is adjusted for compounding over a given period. Essentially, it reflects the total interest that will be paid or earned over a year, taking into account the effect of compounding.