Consider the Following Timeline

question 5

Multiple Choice

Consider the following timeline:
If the current market rate of interest is 12%,then the value of the cash flows in year 0 and year 2 as of year 1 is closest to:

• A)$257.29
• B)-$78.71
• C)$78.71
• D)$1.29

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Definitions:

Equity Financing

The method of raising capital by selling company shares to investors in return for ownership stakes in the company.

Debt-equity Ratio

A financial ratio that gauges a corporation's leverage by dividing its total obligations by its stockholders' equity.

Sustainable Rate

A Sustainable Rate often refers to the growth rate at which a company can continue to grow without needing to increase financial leverage.

Capital Budgeting

The process by which a business evaluates and selects long-term investments that are consistent with the firm's goal of maximizing owner wealth.