By the end of this year you would be 35 years old and you want to plan for your retirement. You wish to retire at the age of 65 and you expect to live 20 years after retirement. Upon retirement you wish to have an annual sum of $50,000 to supplement your social security benefits. Therefore, you opened now your retirement account with 7% annual interest rate. At retirement you liquidate your account and use the funds to buy an investment grade bond which makes $50,000 annual coupon payments based on a 6 % coupon rate, throughout your retirement years.
How much will your inheritors receive?
In: Finance
Below are the 2018 and 2019 year-end balance sheets for Walker Inc.:
| Assets | 2019 | 2018 |
| Cash | $200,000 | $170,000 |
| Accounts receivable | 864,000 | 700,000 |
| Inventories | 2,000,000 | 1,400,000 |
| Total current assets | $3,064,000 | $2,270,000 |
| Net fixed assets | 6,800,000 | 6,600,000 |
| Total assets | $9,864,000 | $8,870,000 |
| Liabilities and equity | ||
| Accounts payable | $1,400,000 | $1,090,000 |
| Notes payable | 1,600,000 | 1,800,000 |
| Total current liabilities | $3,000,000 | $2,890,000 |
| Long-term debt | 3,200,000 | 2,400,000 |
| Common stock | 3,000,000 | 3,000,000 |
| Retained earnings | 664,000 | 580,000 |
| Total common equity | $ 3,664,000 | $ 3,580,000 |
| Total liabilities and equity | $9,864,000 | $8,870,000 |
Walker has never paid a dividend on its common share, and it issued $2,400,000 of 10-year non-callable, long-term debt in 2018. As of the end of 2019, none of the principal on this debt had been repaid. Assume that the company’s sales in 2018 and 2019 were the same. Which of the following statements must be correct?
| a. | Walker increased its short-term bank debt in 2019. | |
| b. | Walker issued new common shares in 2019. | |
| c. | Walker issued long-term debt in 2019. | |
| d. | Walker repurchased some common shares in 2019. |
In: Finance
Suppose that at the end of the year you have a capital gain on a T-Bond. You would like to lock in your profits now but rather wait for the year to end to delay the capital gain tax until next year. How would you use the futures markets to achieve your objective? What are the risks of your strategy?
In: Finance
Next year, Flying Cow is expected to earn an EBIT of $10,000,000, and to pay a federal-plus-state tax rate of 35%. It also expects to make $2,500,000 in new capital expenditures to support this level of business activity, as well as $50,000 in additional net operating working capital (NOWC).
Given these expectations, it is reasonable to conclude that next year Flying Cow will generate an annual free cash flow (FCF) of (rounded to the nearest whole dollar).
Next, based on your estimate of Flying Cow’s next year’s FCF and making the stated assumptions, complete the following table:
| • | Flying Cow can sustain this annual FCF forever, |
| • | the company has a weighted average cost of capital of 17.10%, |
| • | the company does not currently own any marketable securities, |
| • | there are 75,000 shares of Flying Cow outstanding |
| • | the company’s value of debt is 45% of its total entity value, and |
| • | the company’s value of preferred shares is 25% of its total entity value. |
|
Attributes of Flying Cow |
Value |
|---|---|
| Total Entity Value | |
| Value of Common Equity | |
| Intrinsic value (per share) |
In: Finance
The sales budget for your company in the coming year is based on a quarterly growth rate of 10 percent with the first-quarter sales projection at $225.9 million. In addition to this basic trend, the seasonal adjustments for the four quarters are 0, −$16.9, −$8.9, and $21.9 million, respectively. Generally, 50 percent of the sales can be collected within the quarter and 45 percent in the following quarter; the rest of the sales are bad debt. The bad debts are written off in the second quarter after the sales are made. The beginning accounts receivable balance is $104.9 million. Assuming all sales are on credit, compute the cash collections from sales for each quarter. (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
In: Finance
In: Finance
Trying to solve a problem
Withdrawals per year =$50,000
Number of years -25
Amount required at the end of 20 years will be equal to the present value of all future withdrawls.
i.e. Amount = $50,000*PVAF(11%,25years)
= $50,000*8.422
= 421,100
Where or how do they get to 8.422. To multiply by the $50,000 I just can't figure that out?
In: Finance
Find the present values of these ordinary annuities. Discounting occurs once a year. Do not round intermediate calculations. Round your answers to the nearest cent.
$1,000 per year for 14 years at 4%.
$
$500 per year for 7 years at 2%.
$
$700 per year for 7 years at 0%.
$
Rework previous parts assuming they are annuities due.
Present value of $1,000 per year for 14 years at 4%: $
Present value of $500 per year for 7 years at 2%: $
Present value of $700 per year for 7 years at 0%: $
In: Finance
Suppose that a two-year bond with a principal of $100 provides coupons at the rate of 6% per annum semiannually. Suppose that the zero-rates are
| Maturity (years) | Zero Rate (%) |
| 0.5 | 5.0 |
| 1.0 | 5.8 |
| 1.5 | 6.4 |
| 2.0 | 6.8 |
What is the bond's yield to maturity expressed with the continuous compounding?
- please use the formulas and explain step by step
In: Finance
Suppose that a two-year bond with a principal of $100 provides coupons at the rate of 6% per annum semiannually. Suppose that the zero-rates are
| Maturity (years) | Zero Rate (%) |
| 0.5 | 5.0 |
| 1.0 | 5.8 |
| 1.5 | 6.4 |
| 2.0 | 6.8 |
What is the current theoretical price of the bond?
- please use formulas and explain step by step
In: Finance