Week 1: Problem Set 1 1. Ben Collins plans to buy a house for $65,000. If that real estate property is expected to increase in value 5 percent each year, what would its approximate value be seven years from now? Answer: PV * FVF or, PV (1 + .05)^n or, PV (1.05)^7 or, PV * 1.4071 or, $65,000 * 1.4071 = $91,461.50 2. At an annual interest rate of five percent, how long would it take for your savings to double?
They are very low pressure areas with diameters of over 500 miles. The barometric air pressure in inches of mercury at a distance of x miles from the eye of a severe hurricane is modeled by the formula f(x) = 0.48 ln (x + 1) + 27. (Source: A. Miller and R. Anthes, Meteorology) a. Evaluate f(0) and f(100). Interpret the result.
Nikko Corp's total common equity at the end of last year was $305,000 and its net income after taxes was $60,000. What was its ROE(Return on Equity)? (Points : 6) 16.87% 17.75% 18.69% 19.67% 20.66% Formula used in Return on Equity calculation is: 3. You have a chance to buy an annuity that pays $1,000 at the end of each year for three years. You could earn 5.5% on your money in other investments with equal risk.
Desperate for revenue, the federal government legislature has finally decided to raise the cigarette tax. Currently the tax is 5 cents per pack. A tax analyst indicates that the elasticity of supply for cigarette is 5 and the elasticity of demand is -0.2 a) Suppose the tax is increased by 35 cents. How much of the tax would be paid by consumers in the form of higher price paid and how much would be paid by producers in the form of a lower price received? b) Assuming the government collected $43 million in cigarette tax revenue last year.
0.125 4. The formula S = C (1 + r)t models inflation, where: a. C = the value today b. r = the annual inflation rate c. S = the inflated value t years from now Use this formula to solve the following problem: 4. If the inflation rate is 3 percent, how much will a house now worth $510,000 be worth in 5 years? $591,229 5.
P(x) =x^2 – 4000x + 7800000 3800000 = x^2 -4000x + 7800000 answer: number of items sold= 2000 X^2-4000x+4000000=0 (x-2000) ^2=0 X=2000 P(2000) =3800000 6. The value of a machine depreciates according to the function f(x)=20000(1/2)x , where x is the time in years from the purchase of the machine. Find its value after 3 years. 1(x)=200000(1/2)^x 20,000(.5)
Chapter 11 Investments SOLUTIONS MANUAL 49. [LO 1] Dana intends to invest $30,000 in either a Treasury bond or a corporate bond. The Treasury bond yields 5 percent before tax and the corporate bond yields 6 percent before tax. Assuming Dana’s federal marginal rate is 25 percent and her marginal state rate is 5 percent which of the two options should she choose? If she were to move to another state where her marginal state rate would be 10 percent, would her choice be any different?
Therefore, the cost of fixed rate debt equals 8.95% plus 1.1% risk premium, which totaled to 10.5% Cost of Debt = (0.5 x 0.08) + (0.5 x 0.105) = 0.095 = 9.25% [since floating rate and fixed rate debt both weigh 50%, we use the weighted average approach to calculate the total cost of debt rate] Based on historical data analysis below, we get an average income tax rate of 42%. | 1978 | 1979 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | 1986 | 1987 | Income before income taxes | 83.5 | 105.6 | 103.5 | 121.3 | 133.7 | 185.1 | 236.1 | 295.7 | 360.2 | 398.9 | Income tax | 35.4 | 43.8 | 40.6 | 45.2 | 50.2 | 76.7 | 100.8 | 128.3 | 168.5 | 175.9 | Tax rate | 42% | 41% | 39% | 37% | 38% | 41% | 43% | 43% | 47% | 44% | | | | | | | | | | | | Average tax rate | 42% | | | | | | | | | | After-tax cost of debt = (1 - 0.42) x 0.0925 = 0.05365 = 5.365% Cost of Equity From Table B and Exhibit 5, * Risk free rate (1-year)= 6.9% Premium = 8.47% * Risk free rate (10-year)= 8.95% Premium = 7.43% ** ** Since A rated bond is considered upper medium grade and the company is A rated, we assume long-term
A.cash B.unsecured loans C.time deposits D.U.S. government securities Question 12 of 20 5.0 Points Identify and describe the factors, in addition to supply and demand, that determine interest rates. Question 13 of 20 5.0 Points You need $8,000 four years from now for a down payment on your future house. How much money must you deposit today if your credit union pays 5% interest compounded annually? Pick the closest answer.
Part (b) Calculate the seasonal forecast of sales for February of Year 3. Part (c) Which forecast do you think is most accurate and why? 11. Question : (TCO 6) Davis Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project A Project B Initial Investment $800,000 $650,000 Annual Net Income $50,000 45,000 Annual Cash Inflow $220,000 $200,000 Salvage Value $0 $0 Estimated Useful Life 5 years 4 years The company requires a 10% rate of return on all new investments.