"1. Jeanie has deposited $33,000 today in an account which will earn 10 percent annually. She plans to leave the funds in this account for seven years earning interest. If the goal of this deposit is to cover a future obligation of $65,000, what recommendation would you make to Jeanie? 2. Fred has inherited $6,000 from the death of Barney. He would like to use this money to buy Wilma a new rockmobile costing $7,000 for their 10th anniversary celebration which will take place in 2 years from now. Will Fred have enough money to buy the gift if he deposits his money in an account paying 8 percent compounded semi annually? 3. Calculate the future value of an annuity of $5,000 each year for eight years, deposited at 6 percent. 4. Calculate the present value of an annuity of $3,900 each year for four years, assuming an opportunity cost of 10 percent. 5. Joie is planning to attend college when she graduates from high school 7 years from now. She anticipates that she will need $10,000 at the beginning of each college year to pay for tuition and fees, and have some spending money. Joie has made an arrangement with her father to do the household chores if her dad deposits $3,500 at the end of each year for the next 7 years in a bank account paying 8 percent interest. Will there be enough money in the account for Joie to pay for her college expenses? Assume the rate of interest stays at 8 percent during the college years. 6. You have provided your friend with a service worth $8,500. Your friend offers you the following cash flow instead of paying $8,500 today. Should you accept his offer if your opportunity cost is 8 percent? Year Cash Flow 1 $4,000 2 3,000 3 2,000 4 1,000 7. Mr. Handyman has been awarded a bonus for his outstanding work. His employer offers him a choice of a lump sum of $5,000 today, or an annuity of $1,250 a year for the next five years. Which option should Mr. Handyman choose if his opportunity cost is 9 percent? 8. Suzy wants to buy a house but does not want to get a loan. The average price of her dream house is $500,000 and its price is growing at 5 percent per year. How much should Suzy invest in a project at the end of each year for the next 5 years in order to accumulate enough money to buy her dream house with cash at the end of the fifth year? Assume the project pays 12 percent rate of return. 9. Marc has purchased a new car for $15,000. He paid $2,500 as down payment and he paid the balance by a loan from his hometown bank. The loan is to be paid on a monthly basis for two years charging 12 percent interest. How much are the monthly payments? 10. To expand its business, the Kingston Outlet factory would like to issue a bond with par value of $1,000, coupon rate of 10 percent, and maturity of 10 years from now. What is the value of the bond if the required rate of return is 1) 8 percent, 2) 10 percent, and 3) 12 percent? 11. Peter has recently inherited $10,000 and is considering purchasing 10 bonds of the Lucky Corporation. The bond has a par value of $1,000 with 10 percent coupon rate and will mature in 10 years. Does Peter have enough money to buy 10 bonds if the required rate of return is 9 percent? 12. Fancy Food, Inc. has issued a bond with par value of $1,000, a coupon rate of 9 percent that is paid semi annually, and that matures in 10 years. What is the value of the bond if the required rate of return is 12 percent? 13. The H&H Computer Company has an outstanding issue of bond with a par value of $1,000, paying 12 percent coupon rate semi annually. The bond was issued 25 years ago and has 5 years to maturity. What is the value of the bond assuming 14 percent rate of interest? 14. In response to the stock market?s reaction to its dividend policy, the Paper Company has decided to increase its dividend payment at a rate of 4 percent per year. The firm?s most recent dividend is $3.25 and the required rate of interest is 9 percent. What is the maximum you would be willing to pay for a share of the stock? 15. Kingston Kitchen Stuff has recently sold 1,000 shares of $6.75 preferred stock. What is the value of the stock assuming 10 percent required rate of return? 16. The Fur Company has been experiencing several years of financial difficulty and, thus, has considered maintaining its dividend payment at $2.50 indefinitely. What is the value of its common stock if the required rate of return is 8.5 percent? 17. The Bradshaw Company?s most recent dividend was $6.75. The historical dividend payment by the company shows a constant growth rate of 5 percent per year. What is the maximum you would be willing to pay for a share of its common stock if your required rate of return is 8 percent? 18. The Medical Equipment Company paid $2.25 common stock dividend last year. The company?s policy is to allow its dividend to grow at 5 percent per year indefinitely. What is the value of the stock if the required rate of return is 8 percent? 19. A firm has an issue of preferred stock outstanding that has a stated annual dividend of $4. The required return on the preferred stock has been estimated to be 16 percent. The value of the preferred stock is _________. (a) $64 (b) $16 (c) $25 (d) $50 Table 7.2 Year Dividends($) 2003 2.89 2002 2.53 2001 2.22 2000 1.95 1999 1.71 1998 1.50 20. Calculate the estimated dividend for 2004. (See Table 7.2.) Asuma que la tasa de crecimiento, g, es de 14%. 21. The required return is assumed to be 17 percent. Using the Gordon model, calculate the per share value of the stock. (See Table 7.2.) 22. Sopp Accounting Services has an outstanding issue of 1,000 shares preferred stock with a $100 par value, an 8 percent annual dividend, and 5,000 shares of common stock outstanding. If the stock is cumulative and the board of directors has passed the preferred dividend for the last two years, how much must preferred stockholders be paid prior to paying dividends to common stockholders? "
Paper#8422 | Written in 18-Jul-2015Price : $25