Find the present value of $700 due in the future under each of these conditions: 9% nominal rate, semiannual compounding, discounted back 10 years. Do not round intermediate calculations. Round your answer to the nearest cent. $ 9% nominal rate, quarterly compounding, discounted back 10 years. Do not round intermediate calculations. Round your answer to the nearest cent. $ 9% nominal rate, monthly compounding, discounted back 1 year. Do not round intermediate calculations. Round your answer to the nearest cent. $ Why do the differences in the PVs occur?
| 0 | 1 | 2 | 3 | 4 | 5 |
| Stream A | $0 | $150 | $350 | $350 | $350 | $250 |
| Stream B | $0 | $250 | $350 | $350 | $350 | $150 |
Stream A: $
Stream B: $
Stream A: $
Stream B: $
In: Finance
You are considering an option to purchase or rent a single residential property. You can rent it for $4,000 per month and the owner would be responsible for maintenance, property insurance, and property taxes.
Alternatively, you can purchase this property for $300,000 and finance it with an 80% mortgage at 7% interest, 25 year - fixed. The loan can be prepaid at any time with no penalty.
You have done research in the market and found that properties have historically appreciated at an annual rate of 4% per year. Rents on similar properties have also increased at the same rate. Maintenance and insurance are currently $2,500 each per year and they have been increasing at a rate of 4% per year. Property taxes have generally been about 3% of the property value each year.
If you purchase, the plan is to occupy the property for at least four years. Selling costs would be 7% in the year of sale.
Based on this information you must decide:
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Butterfly Tractors had $21.50 million in sales last year. Cost of goods sold was $9.50 million, depreciation expense was $3.50 million, interest payment on outstanding debt was $2.50 million, and the firm’s tax rate was 30%.
a. What would be the impact on net income and cash flow if the firm’s interest expense were $2.50 million higher. (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000")
In: Finance
Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two-for-one in the last period.
| P0 | Q0 | P1 | Q1 | P2 | Q2 | |
| A | 84 | 100 | 89 | 100 | 89 | 100 |
| B | 44 | 200 | 39 | 200 | 39 | 200 |
| C | 88 | 200 | 98 | 200 | 49 | 400 |
Calculate the first-period rates of return on the following
indexes of the three stocks: (Do not round intermediate
calculations. Round your answers to 2 decimal
places.)
a. A market value–weighted index
Rate of return
%
b. An equally weighted index
Rate of return %
In: Finance
Butterfly Tractors had $21.50 million in sales last year. Cost of goods sold was $9.50 million, depreciation expense was $3.50 million, interest payment on outstanding debt was $2.50 million, and the firm’s tax rate was 30%.
a. What was the firm’s net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000") Net income $ million Net cash flow $ million
b. What would happen to net income and cash flow if depreciation were increased by $2.50 million? (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000") Net income by $ million Cash flow by $ million
d. What would be the impact on net income and cash flow if the firm’s interest expense were $2.50 million higher. (Input all amounts as positive values.
In: Finance
An investment will pay $100 at the end of each of the next 3 years, $250 at the end of Year 4, $400 at the end of Year 5, and $550 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent.
You want to buy a car, and a local bank will lend you $10,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 5% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places.
In: Finance
Apple has just paid a quarterly dividend of $3.69. Dividends are expected to grow by 10% for the next 4 quarters, and then grow by 1.1% thereafter. Apple has a required quarterly return of 2%.
What is the expected dividend in four quarters?
What is the terminal value in the fourth quarter (P4)?
What is the value of the stock now?
In: Finance
You are told today that you’ll inherit a castle from your uncle in 5 years. You’ll need to
pay a property tax of $500,000 on the castle in year 6. Then the property tax will go up
each year by 1%. You and your descendant are going to pay for the property tax each year
forever. Suppose the interest rate is 10% per year. If you want to set aside enough money
today to be able to make all the future property tax payment, how much money do you
need?
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On January 1, 2017, your brother's business obtained a 30-year amortized mortgage loan for $350,000 at a nominal annual rate of 7.35%, with 360 end-of-month payments. The firm can deduct the interest paid for tax purposes. What will the interest tax deduction be for 2018 (second-year interest expense on the mortgage)? Answer--$25,361.98
In: Finance
ABC Trucking's balance sheet shows a total of noncallable $33 million long-term debt with a coupon rate of 7.80% and a yield to maturity of 7.10%. This debt currently has a market value of $49 million. The balance sheet also shows that the company has 13 million shares of common stock, and the book value of the common equity is $379.95 million. The current stock price is $31.15 per share; stockholders' required return, rs, is 16.35%; and the firm's tax rate is 27.00%. The CFO thinks the WACC should be based on market value weights, but the president thinks book weights are more appropriate. What is the difference between the WACCs using market value and the book value?
In: Finance
| A project has the following cash flows: |
| Year | Cash Flow | |||
| 0 | $ | 59,000 | ||
| 1 | – | 34,000 | ||
| 2 | – | 39,000 | ||
| a. | What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | What is the NPV of this project if the required return is 12 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| c. | What is the NPV of the project if the required return is 0 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| d. | What is the NPV of the project if the required return is 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
A not-for-profit childcare center wants to expand its services by offering an after-school program. The after-school program would operate 40 weeks per year, 4 hours a day, 5 days a week. The program would have a capacity of 20 students per week, and would charge $80 per student per week. The program will be staffed by two teachers who will each be paid $25 per hour. The program will pay $15,000 a year in rent and utilities, spread evenly throughout the year, and will also pay $200 per week it is open for childcare insurance.
The program will purchase furniture and media equipment at a cost of $10,000. The furniture and equipment are expected to last 5 years and to have no salvage value. In order to purchase the furniture and equipment, the program will take out a bank loan of $8,000 on the first day of operations. The bank loan has an annual interest rate of 4%; no principal repayment will be due during the first year. Supplies will cost $5 per student per week and snacks will cost $3 per student per week.
(a) How many children per week must the center serve in order to break even? Show your calculations. What would you advise the board to decide based on financial criteria?
In: Finance
Facebook (FB) currently trades at $210.00. You purchase a 23 month European $11.00 strike call option on a short futures contract on one share of FB. The futures delivery date is 43 months from now and the delivery price is $246.00. The risk-free rate is 4.2%. Compute the range of prices of FB 23 months from now that will make you want to exercise your option.
In: Finance
7
.
You invest $100 in a T-bill with a rate of return of 0.05, and in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15.
What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard
deviation of 0.06?
In: Finance
An environmental consultant is considering the installation of a water storage tank for a client. The tank is estimated to have an initial cost of $310,000, and annual maintenance costs are estimated to be $8,200 per year. As an alternative, a holding pond can be provided a short distance away at an initial cost of $210,000 for the pond plus $90,000 for pumps and piping. Annual operating and maintenance costs for the pumps and holding pond are estimated to be $10,000. The planning horizon is 20 years, and at that time, neither alternative has any salvage value. MARR is 18 %/year
What is the present worth of each alternative?
Storage tank? $_____
Holding pond?$____
In: Finance