Joe can purchase one of two annuities.
Annuity 1: A 10 year decreasing annuity immediate with annual payments
of 10, 9, 8, ..., 2, 1.
Annuity 2: A perpetuity immediate with annual payments: the perpetuity
pays 1 in year 1, 2 in year 2, 3 in year 3, ...., 11 in year 11. After year 11, the
payments remain constant at 11.
At an annual e§ective interest rate of i, the present value of Annuity 2 is
twice the present value of Annuity 1. Calculate the present value of Annuity 1
at this annual e§ective interest rate of i.

1. Charon Circuits just announced a 10-year, semiannual coupon payment bond issue with an original issue size of $20 million and a coupon of 8%. No principal will be repaid during the first two years; however, a sinking fund arrangement calls for 10% of the remaining principal to be repaid at the end of each year beginning at the end of year 3 and continuing until the full repayment of the remaining principal at the end of the 10th year. Create a payment schedule detailing Charon’s interest and principal payment obligation. Note that there are two interest payments per year and the sinking fund requires only one principal payment per year.

Prepare year end adjusting entries for these situations.

1. Accrued interest on notes payable is $80.

2. Income taxes incurred but not paid or recordered total to $1,000.

3. Legal fees of $5000 were received in advanced. By the end of the year, 80% of the fees were earned.

4. Services totaling $1,000 have been completed but not recorded or billed.

5. Payroll for the work week (five days) to be paid on Friday is $10,000. The year ends on a Wednesday.

6. Supplies available for use during the year total to $3,400. By the end of the year, there is only$1,700 in supplies remaining.

7. Depreciation for the year total to $3,000.

10. You friend Kei is thinking of opening an art studio. They estimate it will cost $60,000 a year to rent a space downtown. Additionally, they estimate they will spend $80,000 in merchandise each year. Currently, they are earning $40,000 a year working at a museum. (3 pts.)

a. If Kei thinks they will earn $200,000 a year in revenue, should they open the art studio? Briefly explain your answer.

b. If Kei thinks they will earn $120,000 a year in revenue, should they open the art studio? Briefly explain your answer.

c. If Kei thinks they will earn $160,000 a year in revenue, should they open the art studio? Briefly explain your answer.

An Italian currency dealer has good credit and can borrow €800,000 or $1,000,000 for one year. The one-year interest rate in the U.S. is i$ = 2% and in the euro zone the one-year interest rate is i€ = 5.5%. The spot exchange rate is $1.25 = €1.00 and the one-year forward exchange rate is $1.20 = €1.00

a) Show how to realize a certain profit via covered interest arbitrage.

b) Using given one-year forward rate answer what is the spot rate that should prevail if rates of inflation expected to prevail for the next year in the U.S. is 3 percent and 5 percent in the euro zone.

Home Place​ Hotels, Inc., is entering into a​ 3-year remodeling and expansion project. The construction will have a limiting effect on earnings during that​ time, but when it is​ complete, it should allow the company to enjoy much improved growth in earnings and dividends. Last​ year, the company paid a dividend of ​$2.50. It expects zero growth in the next year. In years 2 and​ 3, 4​% growth is​ expected, and in year​ 4, 21​% growth. In year 5 and​ thereafter, growth should be a constant 8​% per year. What is the maximum price per share that an investor who requires a return of 17​% should pay for Home Place Hotels common​ stock?

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.85 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,130,000 in annual sales, with costs of $825,000. The project requires an initial investment in net working capital of $350,000, and the fixed asset will have a market value of $235,000 at the end of the project. If the tax rate is 34 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3?

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.94 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,160,000 in annual sales, with costs of $855,000. The project requires an initial investment in net working capital of $380,000, and the fixed asset will have a market value of $250,000 at the end of the project. If the tax rate is 34 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3?

​(Payback period calculations​) You are considering three independent​ projects: project​ A, project​ B, and project C. Given the free cash flow information in the popup​ window, calculate the payback period for each. If you require a​ 3-year payback before an investment can be​ accepted, which​ project(s) would be​ accepted?

Initial Outlay   -900   -10,000   -6,500
Inflow year 1   700   6,000   2,000
Inflow year 2   400   4,000   2,000
Inflow year 3   200   4,000   4,000
Inflow year 4   100   4,000   4,000
Inflow year 5   600   4,000   4,000

Hafners Construction is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $15,000,000 for the year. Lauren Bobo​,staff analyst at Hafners​, is preparing an analysis of the three projects under consideration by Caden Hafners​, the​ company's owner.

Project A

Project B

Project C

Projected cash outflow

Net initial investment

$6,600,000

$8,500,000

$9,000,000

Projected cash inflows

Year 1

$3,600,000

$5,500,000

$4,900,000

Year 2

3,600,000

2,000,000

4,900,000

Year 3

3,600,000

1,100,000

200,000

Year 4

3,600,000

100,000

Required rate of return

6%

6%

6%