One of the basic concepts in finance is the, which means that a unit of currency received today is worth more than the same unit of currency received at some future. This is why you need to pay interest to the lender when you borrow money. Accordingly, since is essentially money lent to a firm's customers, the amount a firm collects from the customers should be seen as the sum of the value of the product/service sold and the for deferring payment. Following this logic, if a firm can borrow at 3.6% from its bank, the firm would be better off if it can receive payment one month early in exchange for giving a discount less than % (one decimal place). When you are considering to start a business, the most important consideration is whether the venture will result in value creation, which can be determined by estimating the of the venture. That is, you must compare the initial investment with the expected discounted cashflow over the life of the business. For example, if you are considering to open a cafe in Beppu, which would require an initial investment of 5,000,000 yen, you will need to earn an annual cashflow of at least yen (in units and no 1000 separators) if you believe that the appropriate discount rate is 20%, and assume that there is no opportunity for growth. When you are valuing a company, the usual methodology is to forecast near-term cashflows based on available information and use the formula beyond that to estimate the terminal value. For example, if you forecast that a company would earn $1.0 million, $1.1 million, \$1.2 million, $1.3 million and $1.4 million for five years in that order, expect 10% growth thereafter and use a discount rate of 18%, the present value of the company as it currently operates would be S million (one decimal place). Concepts learned in finance can be put to everyday use, for example, figuring out how much you should pay for a house. If your current annual rent payment is $12,000, and you expect that to increase by 3 percent each year, and you believe that percent is the appropriate discount rate, you would be happy to pay $12,000,000 for a comparable house (Since there's typically not much difference between twenty/thirty year of cashflows and perpetual cashflows, assume that, for the sake of convenience, the house will last forever). The value of a bond can be calculated by discounting its cashflow, which consists of regular coupon payments and redemption of at maturity, using the desired yield as the discount rate. For example, a bond whose face value is $200,000, coupon rate is 3% and is maturing in 6 years would have a value of $ (two decimal places, no 100 separator) and be priced at (two decimal places) if the desired yield is 2%. Assume that coupons are paid twice a year. When a company is issuing bonds, it usually cannot issue them exactly at face (par) value because the coupon rate and the yield demanded by investors do not match exactly. For example, when a company is issuing a ten-year bond, whose coupon rate is 4%, when the yield demanded by investors is 4.0120%, the price of the bond will be (two decimal places). This means that the company would be able to raise $ million (two decimal places) if the total face value of the bonds issued is $50 million. Part III. Please answer, following the instructions (please note that some questions have word number limits). Explain briefly what is wrong with the following reasoning. My firm built a new plant two years ago with an investment of $100 million, which had an expected present value of $150 million, considering the plant's future cash flows. Today, it has become apparent that the product manufactured at the plant is not selling as well as expected. The present value of future cash flows at that point is now only worth $50 million. My firm would therefore be shutting down the plant because the net present value is now negative. One of the basic concepts in finance is the, which means that a unit of currency received today is worth more than the same unit of currency received at some future. This is why you need to pay interest to the lender when you borrow money. Accordingly, since is essentially money lent to a firm's customers, the amount a firm collects from the customers should be seen as the sum of the value of the product/service sold and the for deferring payment. Following this logic, if a firm can borrow at 3.6% from its bank, the firm would be better off if it can receive payment one month early in exchange for giving a discount less than % (one decimal place). When you are considering to start a business, the most important consideration is whether the venture will result in value creation, which can be determined by estimating the of the venture. That is, you must compare the initial investment with the expected discounted cashflow over the life of the business. For example, if you are considering to open a cafe in Beppu, which would require an initial investment of 5,000,000 yen, you will need to earn an annual cashflow of at least yen (in units and no 1000 separators) if you believe that the appropriate discount rate is 20%, and assume that there is no opportunity for growth. When you are valuing a company, the usual methodology is to forecast near-term cashflows based on available information and use the formula beyond that to estimate the terminal value. For example, if you forecast that a company would earn $1.0 million, $1.1 million, \$1.2 million, $1.3 million and $1.4 million for five years in that order, expect 10% growth thereafter and use a discount rate of 18%, the present value of the company as it currently operates would be S million (one decimal place). Concepts learned in finance can be put to everyday use, for example, figuring out how much you should pay for a house. If your current annual rent payment is $12,000, and you expect that to increase by 3 percent each year, and you believe that percent is the appropriate discount rate, you would be happy to pay $12,000,000 for a comparable house (Since there's typically not much difference between twenty/thirty year of cashflows and perpetual cashflows, assume that, for the sake of convenience, the house will last forever). The value of a bond can be calculated by discounting its cashflow, which consists of regular coupon payments and redemption of at maturity, using the desired yield as the discount rate. For example, a bond whose face value is $200,000, coupon rate is 3% and is maturing in 6 years would have a value of $ (two decimal places, no 100 separator) and be priced at (two decimal places) if the desired yield is 2%. Assume that coupons are paid twice a year. When a company is issuing bonds, it usually cannot issue them exactly at face (par) value because the coupon rate and the yield demanded by investors do not match exactly. For example, when a company is issuing a ten-year bond, whose coupon rate is 4%, when the yield demanded by investors is 4.0120%, the price of the bond will be (two decimal places). This means that the company would be able to raise $ million (two decimal places) if the total face value of the bonds issued is $50 million. Part III. Please answer, following the instructions (please note that some questions have word number limits). Explain briefly what is wrong with the following reasoning. My firm built a new plant two years ago with an investment of $100 million, which had an expected present value of $150 million, considering the plant's future cash flows. Today, it has become apparent that the product manufactured at the plant is not selling as well as expected. The present value of future cash flows at that point is now only worth $50 million. My firm would therefore be shutting down the plant because the net present value is now negative