b. The future value of $800 saved each year for 10 years at 8 percent. c. The amount that a person would have to deposit today (present value) at a 6 percent interest rate in order to have $1,000 five years from now. d. The amount that a person would have to deposit today in order to be able to take out $500 a year for 10 years from an account earning 8 percent. Solution: a.
$1,574 b. $1,048 c. $4,798 d. Other 5. Janie Morgan needs to accumulate $2,000 in 18 months. If she can earn 6% at the bank, compounded quarterly, how much she deposit today? a.
$24,000 increase D. $11,000 decrease 45. Hylow Corporation sells its product for $12 per unit. Next year, fixed expenses are expected to be $400,000 and variable expenses are expected to be $8 per unit. How many units must the company sell to generate net operating income of $80,000? A.
c. Internal common equity where the current market price of the common stock is $43.50. The expected dividend this coming year should be $3.25, increasing thereafter at a 7% annual growth rate. The corporation’s tax rate is 34%. d. A preferred stock paying a 10% dividend on a $125 par value. If a new issue is offered, flotation costs will be 12% of the current price of $150.
If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell? =Preference Dividend/ Required Return= $7.5/ 6.5%= $ 115.38 13. The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, P0?
If the appropriate discount rate for the project is 10 percent, what is the profitability index of the project? 4. What might cause a firm to face capital rationing? 5. The WACC for a firm is 19.75 percent.
Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1 = $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm’s stock? Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year.
Eisenhower communications is trying to estimate the first-year net operating cash flow (at year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenue $10 million Operating costs (excluding depreciation) $ 7 million Depreciation $ 2 million Interest expense $ 2 million The company has a 40 percent tax rate, and its WACC is 10 percent a. What is the project’s operating cash flow for the first year? b. If this project would cannibalize other projects by $1 million of cash flow before taxes per year.
Would you enter this market? An electronic calculator manufacturer is considering automating their plant. Current sales are about 600,000 calculators/year, and they are increasing by about 5%/year. The calculators sell (to retailers) for $ 10/unit. Automation would take variable cost/unit from the current $ 7/unit to $ 2/unit.
2. Based on the following, calculate the costs of buying and of leasing a motor vehicle. Purchase Costs Leasing Costs Down payment $1,500 Security deposit $500 Loan payment $450 for 48 months Lease payment $450 for 36 months Estimated value at End of loan $4,000 End of lease charges $600 Opportunity cost interest rate: 4 percent 3. You can purchase a service contract for all of your major appliances for $180 a year. If the appliances are expected to last for 10 years, and you earn 5 percent on your savings, what would be the future value of the amount you would pay for the service contract?