...Alexander Onopchenko,MD Course: BSNS 5225 001 Financial Management Michael Busler, Ph.D. MINICASE #2 30 Sept. 2014 Old Alfred Road Retirement Plan “Old” Alfred Road, age 70 is ready to retire and requires assessment of his fiscal status to do so. He is a widower that lives alone in a home that he has completely paid for that he wishes upon his death to bequeath to his daughter, together with any remaining assets. He wishes to preserve the savings account for unexpected expenses and emergencies, therefore he wishes to live off his investment interest which is expected to continue to grow at .09 and social security payments which will be indexed for inflation at .04. He expects to live an additional 20 years and would like his monthly spending to increase along with inflation therefore remain stable in today’s dollars. His balance sheet is as follows: Income: Initial Interest Per Month Per Year (one) Investments 180,000 .09 1,350 16,200 Savings 12...
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...Minicase: Terence Breezeway, the CEO of Prairie Home Stores has grown his business steadily and was solidly profitable. Most of the supermarkets had been modernized and its brand name was well known. The common stock was distributed among 15 grand children and nephews of Jacob Breezeway. The commitment to high dividend payout had reduced the earnings available for reinvestment and thereby constrained growth. Mr. Breezeway wanted to take Prairie Home public, but what should he sell the shares for? He worried that the shares would be sold, either publicly or privately, at too low a price. One relative was about to accept a private offer of $200, the current book value per share, but Mr. Breezeway had intervened and convinced the would be seller to wait. Prairie Home’s value did not just depend on its current book value or earnings, but on positive future prospects. They called to be 100% by 2011. Unfortunately that would require all of Prairie home’s earnings from 2006 to 2010. After that the company could resume normal dividend payout and growth rate. Mr. Breezeway planned to step aside soon and before then he planned to take the company public, so he drew up a formal report as if the shares were to be publicly traded and thought of the following questions: (he believes it should be traded at 15%, but some rural supermarket chains trade at 11%) 1. What should be assumed about investment and growth according to the following scenario charts...
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