...value of pay off is considered. Questions 9, 10, and 11 give Mr. Smith 3 options: * Option 1: Harvest all crop trees now and receive $8,160 * Option 2: Let the forest grow without thinning, then harvest all crop trees 60 years from now and receive $537,962.01 at harvesting, equivalent to $28,800.08 now * Option 3: Thin and manage the forest, then harvest all crop trees 50 years from now and receive $670,033.56 at harvesting, equivalent to $58,429.42 now Based on the present value of the money received at harvesting, it is highly recommended that Mr. Smith should choose option 3. Furthermore, provided Mr. Smith decides to thin and manage his forest, in case he needs money soon to use for other purposes, he can harvest all of his crop trees at the 40th year to receive $410,608.68 at harvesting, equivalent to $58,325.19 at present, instead of waiting for 10 more years. This is because the present value of money received at the 40th year is just a little ($104.23) less than that of money received at the 50th year. Section 2 – Analysis Question 1 In order to choose the best offer, the amount of payment in each offer is discounted to present at the discount rate of 10%. This is just a basic discounting problem, using the formula PV=FV(1+r)t In this formula, FV is the amount of payment, r is the discount rate of 10%, t is the number of years from now in each offer. Table 1 in the appendix summarizes the present value of payment in each offer. It also shows that offer...
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...you invest $1,000 today at an interest rate of 10% per year, how much will you have 20 years from now, assuming no withdrawals in the interim? Solution: FV PV(1000,10%,20) = 6727.5 $6,727.50 2. If you invest $100 every year for the next 20 years, starting one year from today and you earn interest of 10% per year, how much will you have at the end of the 20 years? How much must you invest each year if you want to have $50,000 at the end of the 20 years? Solution: FV PMT (100, 10%,20) = 5727.50 after 20 years you will have $5,727.50 PMT FV (50000,10%,20) = 872.98 ou must invest, at the end of each year for 20 years, $872.98 3. What is the present value of the following cash flows at an interest rate of 10% per year? . $100 received five years from now. b. $100 received 60 years from now. c. $100 received each year beginning one year from now and ending 10 years from now. d. $100 received each year for 10 years beginning now. e. $100 each year beginning one year from now and continuing forever. Solution: a. PV FV(100, 10%, 5) = $62.09 b. PV FV(100, 10%,60) = $0.33 c. PV PMT(100,10%, 10) = $614.46 d. PV PMT(100,10%, 9) + 100 = 675.90 e. PV PMT(100,10%, Infiniti symbal) = $1000 4. You want to establish a “wasting” fund that will provide you with $1000 per year for four years, at which time the fund will be exhausted. How much must you put in the fund now if you can earn 10% interest per year? Solution: FV PMT (1000, 10%,4) = 3169.87 You need to...
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...The Time of Money Rodney Schilling Financial Management February 26, 2014 Professor Charlie Merritt Argosy University Online LASA 1- The Time of Money In this scenario, I will be giving a detailed report on four different financial issues that Mary has asked me to help her resolve before her retirement. Mary has worked for Argosy University for almost 25 years and is looking to retire in the near future and wants to address several financial issues. Mary has been depositing $500.00 dollars into her savings account every year for the past 19 years and has compounded 5% interest annually and she expected to make one last payment, this time next year. Mary will then close out her account right after that payment and wants to know how much money she will have accrued. For the past 19 years Mary as placed $500.00 dollars into an account making 5% interest compounded annually. Mary will make one last payment into her account; the account will be closed after the last payment has been made. Therefore, I will be looking at how much as $500.00 dollars a year for the past 20 years at 5% interest Mary’s savings has accumulated. I will use future value, because it measures the value of that amount which is allowed to grow at the 5% interest rate over the specified period of time (Block, p.256). This is the formula I will be using: |FV = Future value ...
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...Excel and a calculator. 2) Point totals for each question are specified in parentheses. There are 220 total points. 3) Circle your numerical answers. This makes it easier for me to find them. Show all calculations and the inputs of all values solved for using your calculator or Excel. This allows me to determine how your numbers were arrived at. If you get stuck on the math, tell me what the correct answer should be based on your intuition. Incorrect numerical answers based on the correct logic will receive partial credit. 4) Your answer should be given in the space provided. If you need more space, feel free to write on the back of the page, but clearly mark the question number you are answering. If you would like to add pages from your Excel spreadsheet, please staple them following the corresponding question. You may also upload your spreadsheet to Blackboard. 5) As always, I expect you to abide by the honor code. I trust that no one will give or receive assistance which gives them an unfair advantage over other students. You should not speak about the exam to anyone who has not yet completed it. Please write the following below, consistent with the Smith School Honor Code: "I pledge on my honor that I have not given or received any unauthorized assistance on this exam." 6) Statements by you which are true, but do not answer the question, will not raise your score. Statements that are incorrect will reduce your score. | ...
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...Chapter 14 Capital Budgeting Decisions Solutions to Questions 14-1 Capital budgeting screening decisions concern whether a proposed investment project passes a preset hurdle, such as a 15% rate of return. Capital budgeting preference decisions are concerned with choosing from among two or more alternative investment projects, each of which has passed the hurdle. 14-2 The “time value of money” refers to the fact that a dollar received today is more valuable than a dollar received in the future. A dollar received today can be invested to yield more than a dollar in the future. 14-3 Discounting is the process of computing the present value of a future cash flow. Discounting gives recognition to the time value of money and makes it possible to meaningfully add together cash flows that occur at different times. 14-4 Accounting net income is based on accruals rather than on cash flows. Both the net present value and internal rate of return methods focus on cash flows. 14-5 Discounted cash flow methods are superior to other methods of making capital budgeting decisions because they give specific recognition to the time value of money. 14-6 Net present value is the present value of cash inflows less the present value of the cash outflows. The net present value can be negative if the present value of the outflows is greater than the present value of the inflows. 14-7 One simplifying assumption is that all cash flows occur at the end of a period. Another is that...
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...What are agency problems in a corporation? An agency problem occurs when the managers of the firm act in their own self interests and not in the interests of the shareholders. Describe the potential managerial behaviors that can harm a firm’s value. Managers might: Expend too little time and effort. Consume too many non-pecuniary benefits. Avoid difficult decisions (for example, close a plant) out of loyalty to friends in company. Take on too much risk or not take on enough risk. Avoid returning capital to investors by making excess investments in marketable securities or by paying too much for acquisitions. Massage information releases or manage earnings to avoid revealing bad news. Describe corporate governance. Corporate governance is the set of rules that control a company’s behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community. Describe the corporate governance provisions that are internal to a firm and are under its control. The provisions under a firm’s control are: (1) monitoring and discipline by the board of directors; (2) charter provisions and bylaws that affect the likelihood of hostile takeovers; (3) compensation plans; (4) capital structure choices; and (5) accounting control systems. How does block ownership affect corporate governance? Block ownership occurs when an outside investor owns a large amount (i.e., block) of company’s shares. Large institutional investors, such...
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...time. especially for school you can log into class from anything that has a internet connection. Hi Martha, You are absolutely true. Technology has brought many inventions in our life. The widely used technology is internet and it has come a long way. Several inventions such as smart phones, smart televisions and many more are only possible with internet. Todd Anderson 8 posts Re:Module 7 DQ 2 Professor, Yes technology'swill be to relied on for the future. we as a society have given up knowledge for electronics. Have you ever been in the store and the register was down and watch the cashier try and make change? It is a pathetic thing to witness. what about the new threat of electronic warfare? a computer can kill a entire grid with a few taps on a computer and you have instant chaos. Target stores with their current credit card fraud where a computer was hacked and thousands of peoples credit card numbers was exposed to crooks. the list goes on and on. Todd Anderson Hi Todd, I completely agree with you. There has been numerous incident in past few years about computer hacking and hackers getting into people’s personal accounts. Since we all know the technology invention and I think there will be something designed to stop this happening. But the question is there would be more incidents which we will be facing 20 years from now. Before 20 years our dependency wasn’t like it is now in technology and I am sure in 20 years from now we will depend more on the technology and it’s for...
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...$1000 each, starting 3 years from now. What is the present value if the discount rate is 10%? 2) If the discount rate is 8% per year, what is the present value of $1500 received every third year forever (the first payment occurs three years from now)? 3) A perpetuity makes payments of $500 every second year, with the first payment coming one year from today. If the discount rate is 5%, what is the present value of the perpetuity? 4) You are the pension manager of a large firm. In 25 years an employee will retire and you must start making yearly pension payments to him of $27,000 (the first payment occurs immediately upon retirement, i.e. exactly 25 years from now). You want to make yearly contributions into the pension fund over the next 24 years so that you will have enough to cover this obligation. What is the yearly contribution needed if the annual interest rate is 6% and the employee is expected to live long enough to get 21 payments in total? 5) You get weekly cheques of $50 from a part time job. If the interest rate is 12% compounded daily: a) What is the present value of one year’s salary (52 cheques)? b) If you deposit each cheque in the bank, how much will you have after one year? c) If you deposit each cheque in the bank, but quit your job after one year (and leave all the accumulated money in the bank), how much will you have in the bank after two years? 6) Bill wants to have $50,000 in 10 years in order to buy a new boat. In each of the 20 years after that he will need...
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...interest: a) yearly rate 5%, for 6 years and 4 months b) yearly rate 8%, for 7 years, 2 months and 15 days 2) With a starting investment of 3.65 how long does it take to have a final total value of 4.779 with a 5.2% yearly rate, simple interest ? 3) 10 years ago you deposited 15.6 in a bank account paying 5% (yearly compounding). Six years ago you withdraw 8.465 from the same account and reinvested the same amount at 7.25% (yearly) How much is available now (total)? 4) 3 years ago your parents opened a “saving account” in your favour with a bank paying a 10.75% yearly interest rate. How much do you own today for each € deposited? 5) You borrow, as an overdraft on your current account, 50 with an Italian bank charging you a nominal yearly rate of 18%. How much is your debt with the same bank two years later (Italian banks use Nominal Rates convertible quarterly)? 6) You are entitled to receive 100, 3 years from now. What is the present value of your credit discounted at 16% yearly rate? 7) Your bank charges a 16% yearly nominal rate (quarterly compounding) for a loan in your current account; how much will you pay after 3 years for a 400 loan? 8) How much do you have to invest to have 50 after 4 years with a 12% yearly return? 9) An initial bank deposit of 10 is equal to 50 after 10 years, find the yearly interest rate (compound). 10) How much should you invest today in order to have 30 after 5 years if a yearly yield of 18% is expected? 11) If 20 are invested today, yielding 14%...
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...Michelle Vazquez 12-17-14 Paradigm Shift Over the years, we’ve since technology grow not only in computers, television, but cellphones from big bulky phones to pagers to flip phones now smartphones. This has only happened in the last 40 yrs. now imagine in 20 yrs. from now? They’ll only get more advanced in technology but they’ll also replace laptops desktop computers. Cellphones will have 3 different impacts 20 years from now; entertainment, computers, education. Cell phone will change our education from how we will learn it to how it will be taught. Cell phone policies in schools have changed from not being allowed to they are useful in class for example teacher may not know a problem they can tell you to look it up on your phone. Not all schools have computer labs but 95% of the kids have phones so they could use it to get there work done, research a paper the possibilities are endless. Books are outdated but the internet isn’t so there’s more current information on the web. Teacher will go to their phone and use website or apps to teach things it’s more reliable and give answers with accuracy, Cell phone may replace books in the near future. The entertainment industry has changed since smartphones have been introduced now you can watch Television shows, movies anything you would watch or can watch on the TV you can do it on your phone. Cable companies have to adapt to this technology cause that’s what customers want as a customer I want to be able to record a show on my...
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...retirement account, beginning today, with 20 annual deposits of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 8 percent on his deposits, the amount in the account upon retirement will be 98845.84(since it is a retirement plan so, assumed to be annuity due) correct 91,523.93 – ordinary annuity in this accumulation phase. 2. $100 is received at the beginning of year 1, $200 is received at the beginning of year 2, and $300 is received at the beginning of year 3. If these cash flows are deposited at 12 percent, their combined future value at the end of year 3 is __727.37____. 3. Marla borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is 1481.55 4. A beach house in southern California now costs $350,000. Inflation is expected to cause this price to increase at 5 percent per year over the next 20 years before Louis and Kate retire from successful careers in commercial art. How large an equal annual end-of-year deposit must be made into an account paying an annual rate of interest of 13 percent in order to buy the beach house upon retirement? value of house on ret. 9,28,654.20; A=11,472.40 . 5. Chris is planning for her son's college education to begin five years from today. She estimates the yearly tuition, books, and living expenses to be $5,000 per year for a four-year degree. How much must Chris deposit...
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...CHAPTER 1 3. Assume that the inflation-free rate of interest is 3 percent and that the inflation rate is 10 percent with complete certainty and no taxes. Determine the nominal interest rate. i = nominal rate r = inflation-free rate i = r + p + rp p = inflation rate r = 3%; p = 10%; i = ? i = 0.03 + 0.1 + (0.03)(0.1) i = 0.133 = 13.3% 4. In a world of certainty with no taxes, the nominal interest rate is 10 percent and the inflation-free interest rate is 5 percent. What is the inflation rate? i = 10%; r = 5%; p = ? i = r + p + rp 0.1 = 0.05 + p + 0.05p 0.05 = 1.05p p = 0.0476 = 4.76% 5. Assume no taxes. Suppose the inflation-free interest rate is 5 percent. The market forecasts a deflation rate of 15 percent. What is the nominal interest rate? r = 5%; p = -15%; i = ? i = r + p + rp i = 0.05 + (-0.15) + 0.05(-0.15) i = -0.1075 = -10.75% *The nominal interest rate cannot be negative; no one will invest at a negative rate. CHAPTER 2 4. The Treasury announces an auction of $10 billion par value of 52-week Treasury bills. $2 billion of noncompetitive bids are received. The competitive bids are as follows: Price per $1 of par Par value 0.9200 $3 billion 0.9194 $3 billion 0.9188 $4 billion 0.9180 $2 billion 0.9180 $2 billion 0.9178 $6 billion Compute the price per dollar of par paid by noncompetitive...
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...shown below are considered optimal and will be maintained: Debt | $120,000,000 | Preferred Stock | 20,000,000 | Common Equity | 60,000,000 | TOTAL CLAIMS | $200,000,000 | The firm has a marginal tax rate of 35% and has $4,500,000 from internal sources of equity available for investment. Four years ago Bunky's paid a common stock dividend of $5.545 a share. Yesterday they paid a dividend of $7.00. Assume that this dividend growth rate continues for the indefinite future. The common stock is currently priced to produce a dividend yield (based on the next dividend) of 18%. Bunky's can raise new funds under the following conditions: BONDS: (Up to $24,000,000) New 20 year $1000 par value bonds carrying a coupon of 12 per cent (payable annually) are priced to yield the investor 10% a year. Flotation costs total $70.27 per bond. (Beyond $24,000,000) A second issue of 20 year 12 per cent coupon bonds can be sold to yield the investor 14% a year. Flotation costs total $67.54. PREFERRED STOCK: Any size issue of new preferred stock can be sold to yield the investor 16%. Underwriters charge a fee of 20% of the selling price. COMMON STOCK: Issuing up to $7,500,000 of new common stock requires underpricing and flotation costs equal to 20% of the stock's price. Beyond $7,500,000 requires flotation costs equal to 30% of the selling price. {a} Which projects should Bunky's accept? Your analysis must include the calculation of the marginal cost of capital along all of the various...
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...the image that you are careless, sloppy, and less than professional. For the rest of your life you will be creating your brand: please think about what you are saying about yourself when you do any work for someone else! 1. This problem consists of two separate problems using the price elasticity of demand concept. a. Suppose that you know that the market demand curve for a product is given by the equation P = 100 – 2Q. Furthermore you know that initially 40 units are demanded in this market when it is in equilibrium. Then, some event causes the equilibrium to change so that only 35 units are demanded in this market. From this information you are asked to calculate the price elasticity of demand using the arc elasticity concept. Finally you are asked to identify whether demand is elastic, unit elastic, or inelastic when quantity changes from 40 units to 35 units. b. Suppose you know that the price elasticity of demand for good X has a value of 2. Suppose that the price in the market is initially $10 and the quantity demanded is 100 units. If price in this market decreases by 10%, what will be the percentage change in the quantity demanded given the above information? Answer: a. To answer this question you will...
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...Bio-fuel, a wonder that hasn’t fully been discovered, but in 20 years, will definitely be the source of all things we use today. Have you ever wondered what there might be in the future? How things will run? With these current standards, how fast we waste NON-renewable energy sources, without bio-fuel, we would be lost completely (not counting other renewable energy). I bet by now you’re wondering how bio-fuel can be so amazing. Well, I will explain that all right here. 1. Poop, Feces, Ca-Ca (Insert other name here) You must be wondering, “There’s no way he just said that!” I’m here explaining, yes, I am. So I’m pretty sure, you don’t just go about life, thinking, “I wonder what can happen with all the feces I leave behind?” I mean, not many people wonder about what exactly what happens to our remains, but right now, as you’re reading this, there are ways that are being used to turn our leftovers into enough to power the very things we use today. Cars, cell phones, electricity as a whole... Let’s get to the good stuff. Today research is happening to turn our poo into fuel/power! There’s currently a machine that belches and farts, breaking down our waste, to provide energy to power over 6 acres of greenhouse power, currently in effect at a farm owned by Bayview flowers. Annually, they cut their energy bill from 300,000 to 200,000. That’s a lot of money, and mainly, these machines are at big companies, but 20 years from now, Each and every home might have one installed, and they...
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