What is an opportunity cost rate and how is this rate used


Healthcare Financial Management

Solve the following problems and submit the answers in a Word or Excel document

Healthcare Finance

Gapenski, L. C. (2012). Healthcare finance: An introduction to accounting and financial management. (5th ed.). Chicago, IL: Health Administration Press. ISBN: 978-1-56793-425-0

Solve the following problems and submit the answers in a Word or Excel document:

1. Problem 9.1 from page 323, Chapter 9
a. What is an opportunity cost rate?
b. How is this rate used in time value analysis?
c. Is this rate a single number that is used in all situations?

2. Problem 9.4 from page 324, Chapter 9
Find the following values assuming a regular, or ordinary, annuity:
a. The present value of $400 per year for ten years at 10 percent
b. The future value of $400 per year for ten years at 10 percent
c. The present value of $200 per year for five years at 5 percent
d. The future value of $200 per year for five years at 5 percent

3. Problem 9.6 from page 324, Chapter 9

Consider the following uneven cash flow stream:

Year    Cash Flow

0           $0

1           250

2           400

3           500

4           600

5           600

a. What is the present (Year 0) value if the opportunity cost (discount) rate is 10 percent?
b. Add an outflow (or cost) of $1,000 at Year 0. What is the present value (or net present value) of the stream?

4. Problem 9.7 (a. and b. only) from page 324, Chapter 9

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 present (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

5. Problem 9.9 from page 325, Chapter 9

Assume that you just won $35 million in the Florida lottery, and hence the state will pay you 20 annual payments of $1.75 Million each beginning immediately. If the rate of return on securities of similar risk to the lottery earnings (e.g., the rate on 20-year U.S. Treasury bonds) is 6 percent, what is the present value of your winnings?

Solution Preview :

Prepared by a verified Expert
Financial Management: What is an opportunity cost rate and how is this rate used
Reference No:- TGS01174138

Now Priced at $15 (50% Discount)

Recommended (96%)

Rated (4.8/5)