It originally cost $180,000 and, for depreciation purposes, the straight-line method was chosen. The asset was originally expected to be useful for 15 years and have a zero salvage value. In 2010, the decision was made to shorten the total life of this asset to 9 years and to estimate the salvage value at $3,000 3. Depreciable asset C was purchased January 5, 2006. The asset's original cost was $160,000 and this amount was entirely expensed in 2006.
80*7.1607+1000*.3555 = $928 • 5-2 Yield to Maturity for Annual payments Wilson Wonders’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? 100+1000-850/12/1000+850/2 = 112.5/925 = .1216 or 12.16% • 5-6 Maturity Risk Premium The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years.
Professor Narayanamoorthy ACCN 7120 Advanced Lease Problems Problem#1: LeMay Company has leased land with a FMV of $100,000 and a building with a FMV of $200,000 from Wallace Company. The lease term is 20 years and the useful life of the building is 25 years. At the end of the lease term, LeMay has an option to purchase the building and Land from Wallace for $1.LeMay will pay Wallace $30,000 per year with the first payment due when the lease is signed. You should verify that the Lessor’s implicit rate of return is 8.9195%. Required: 1.
During 10 years, the investors will reinvest all the cash flows into the company, so maintaining the growth of 7.45% each year. The return on equity used for the valuation is the rate of 7.45% which is the return on PacifiCorp equity on 2005. For the cost of equity, the capital would be invested in MidAmerican if the company did not take the acquisition. Therefore, I consider the rate of return on MidAmerican on 2004 (5.72%) as the cost of equity of PacifiCorp. Dividing the present value of future cash flows by the cost of the investment indicates that every dollar invested buys securities worth $1.18.
General Priciple – Performance are only recorded when the target is proable to be acheived Sooner and Later Inc On January 1, 2006, Sooner or Later Inc. granted 1,000 “at-the-money” employee stock options (i.e., the exercise price was equal to the stock price on the grant date). To align the compensation of the employees with the financial performance of the company, the award will vest only if cumulative revenue over the following three-year reporting period is greater than $10 million and the employees are still employed by Sooner or Later. As of the date of the grant, management believes it is probable that the company will achieve cumulative revenue in excess of $10 million over the following threeyear period. Each award has a grant-date fair value of $9. Sooner or Later’s valuation professionals have indicated that if the revenue target was factored into the fair value assessment, the grant-date fair value would be $6.
FIN515 Week 4 Homework 9-1 Future Value of a Company Assume Evco, Inc., has a current price of $50 and will pay a $2 dividend in one year, and its equity cost of capital is 15%. What price must you expect it to sell for right after paying the dividend in one year in order to justify its current price? Answer: Find price of stock in 1 year. Current Price = $50, Dividend = $2, Cost of Equity Capital = 15% X = Price the stock will sell right after paying the dividend: 50 = (2+ X) /(1+0.15) X = 55.50 Therefore, price the stock will sell right after paying the one year dividend is $55.5 9-4 Dividend Yield and Cost of Equity Capital Krell Industries has a share price of $22 today. If Krell is expected to pay a dividend of $0.88 this year, and its stock price is expected to grow to $23.54 at the end of the year, what is Krell’s dividend yield and equity cost of capital?
We measured ROE as: Net incomeTotal equity Assuming the return on equity would be 12 percent per year, at the end of year 2010, the book value of the company would be $5,990.90 million. In order to be able to compare the market value of the company
An investor purchased call options for $2 per option. This investor purchased 1,000 of these call options on a stock that has a standard deviation of 20% and an exercise price of $140/share. The investor has a liquidity problem at this point and needs to sell the call options at current value. The current stock price is $120/share and the option will expire in a ½ year. What is the total profit or loss to the investor?
The project will run for 10 years, the discount rate is 16%, and an initial investment of $2.1 million is required. The project has no salvage value at the end of 10 years. Ignore taxes. (a) What is the base case NPV? (b) Now, suppose that at the end of the first year, the project can be dismantled and sold for $1.4 million.
If you invest $12,000 today, how much will you have: a. In 6 years at 7% b. In 15 years at 12% c. In 25 years at 10% d. In 25 years at 10% (compounded semi annually)? 3. How much would you have to invest today to receive: a.