A new start-up company promises to pay an investor each quarterfor the next two years....

A new start-up company promises to pay an investor each quarter for the next two years. The company will pay $22,225.00 per quarter for the first four quarters, and then $25,075.00 per quarter for the following four quarters. If the investor wants a 8.40% APR return with quarterly compounding, what is the value of the investment opportunity today?

Expert Solution

The value is computed as follows:

Present value = Future value / (1 + r)ⁿ

r is computed as follows:

= 8.4% / 4

= 2.1% or 0.021

So, the amount will be as follows:

= $ 22,225 / 1.021¹ + $ 22,225 / 1.021² + $ 22,225 / 1.021³ + $ 22,225 / 1.021⁴ + $ 25,075 / 1.021⁵ + $ 25,075 / 1.021⁶ + $ 25,075 / 1.021⁷ + $ 25,075 / 1.021⁸

= $ 172,071.59 Approximately

jeff jeffy answered 2 years ago

RedTick Incorporation is a start-up company. It plans to pay no dividends over the next five years

RedTick Incorporation is a start-up company. It plans to pay no dividends over the next five years because it must reinvest all earnings in the company to finance growth. The company plans to begin dividends of RM3 per share starting in year 6, then the dividend is expected to grow at 10 per cent per year for the next three years, and 6 per cent per year in perpetuity beyond that. If the required return on RedTick’s stock is 15...

An investment fund promises to pay $1,000 in two years, then$3,000 in four years, and...

An investment fund promises to pay $1,000 in two years, then $3,000 in four years, and finally $5,000 in six years. If the market requires a 6% return for similar investments, what is the fair price to pay for this fund?A$7,811.48B$9,088.00C$6,791.08D$7,630.46E$7,369.32

An investment promises to return $8,000 at the end of each of the next eight years...

An investment promises to return $8,000 at the end of each of the next eight years and then $3,000 at the end of each of the remaining seven years (years 9 through 15). What is the value of this investment today at a 9 percent interest rate?

?Staton-Smith Software is a new? start-up company and will not pay dividends for the first five...

?Staton-Smith Software is a new? start-up company and will not pay dividends for the first five years of operation. It will then institute an annual cash dividend policy of ?$4.75 with a constant growth rate of 4?%, with the first dividend at the end of year six. The company will be in business for 25 years total. What is the? stock's price if an investor wants a. a return of 12?%? b. a return of 13?%? c. a return of...

Staton-Smith Software is a new start-up company and will not pay dividends for the first five...

Staton-Smith Software is a new start-up company and will not pay dividends for the first five years of operation. It will then institute an annual cash dividend policy of $3.75 with a constant growth rate of 6%, with the first dividend at the end of year six. The company will be in business for 25 years total. What is the stock's price if an investor wants a. a return of 10%? b. a return of 15%? c. a return of...

An investor offers you $706,274 in exchange for shares of your start-up company. The investor demands...

An investor offers you $706,274 in exchange for shares of your start-up company. The investor demands an annual rate of return of 64%, and expect that your IPO will be in 6 years. At that time you expect your firm to have annual income of around $1,812,034 dollars. A similar firm was recently acquired for $18,052,305 dollars. At the time of acquisition, their income was $1,836,685 million dollars per year. What percentage of your equity should you give to the...

An investor offers you $853,457 in exchange for shares of your start-up company. The investor demands...

An investor offers you $853,457 in exchange for shares of your start-up company. The investor demands an annual rate of return of 69%, and expect that your IPO will be in 5 years. At that time you expect your firm to have annual income of around $1,898,530 dollars. A similar firm was recently acquired for $18,848,156 dollars. At the time of acquisition, their income was $1,994,670 million dollars per year. What percentage of your equity should you give to the...

Riley Company promises to pay Janet Anderson or her estate $150,000 per year for the next...

Riley Company promises to pay Janet Anderson or her estate $150,000 per year for the next 10 years, even if she leaves the company or passes away to try to induce her to stay with the company. Riley Company wants to properly record this transaction as deferred compensation but is unsure how to record the cost. In addition, Riley Company purchased a whole life insurance policy for Janet, naming the company as the beneficiary. Riley Company wants to determine if...

A security is currently selling for $8,000 and promises to pay $1,000 annually for the next...

A security is currently selling for $8,000 and promises to pay $1,000 annually for the next 9 years, and $1,500 annually in the 3 years thereafter with all payments occurring at the end of each year. If your required rate of return is 7% p.a., should you buy this security? a. No, because the return is less than 7%. Yes, because the return is greater than 7%. Yes, because the return is 7%. Yes, because the present value at 7%...

An investor likes the potential of a start-up company. He is considering buying part of the...

An investor likes the potential of a start-up company. He is considering buying part of the firm. For his investment, he won’t receive any payments for the first 5.00 years as the company launches. Beginning with the end of year 6.00, he expects to receive $500,000.00 per year for 10.00 years. If he wants a 20.00% return on this investment, what is he willing to pay today for the opportunity?

Question