# finance final problems

How much must they set aside?

A couple with a new baby want to set aside money for college this will be ONE time contribution to a mutual fund that returns 9% per year on average. College tuition is $10,000 for 4 years, but is growing at 4% per year. The baby will start college in 18 years.

How much must they set aside?

How much must they set aside?

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N=18

I/Y=9

PMT=0

FV=10,000(1+.04)^18=20258.17

PV=4294.61

I/Y=9

PMT=0

FV=10,000(1+.04)^18=20258.17

PV=4294.61

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Terms in this set (104)

A couple wit a new baby set aside money today that will cover 4 years of college. ONE time contribution, returns 10% per year on average. Currently college tuition costs $47,100 for four years, but it is growing at 4%. The baby will start college in 17 years.

What will be the cost of tuition when their baby starts college?

What will be the cost of tuition when their baby starts college?

Derek will deposit $3,000 per year for 15 years, interest rate is 9%, and the first deposit is made next year.
How much will be in the account 20 years from today?N=15
PMT=3000
I=9
PV=0
FV=88082.75
FV=88082.75*(1+.09)^(20-15)=135,526.23Suppose the investor is willing to pay no more than $2000 today for a money machine that will produce $2400 3 years from today. The investor used a discount rate of ____ %.N=3
PV= -2000
PMT=0
FV=2400
I=6.27%what is the value today of a money machine that will pay $100 per year for 5 years? Assume the first payment is made one year from today and interest rate is 7%N=5
I=7
PMT=100
FV=0
PV=410.02You will deposit $200 per year for 10 years into an account that earns 5%. The first deposit is made next year or one year from today. How much will be in the account 10 years from today?N=10
I=5
PV=0
PMT= -200
FV=2515.58You will receive $100 per year forever starting from 1 year from today, what is the value of this perpetuity today with 10% of annual interest rate?PV=PMT/r=100/10%=1000suppose you need to have $51832 in an account 22 years from today and that the account pays 14%. How much do you have to deposit into the account 14 years from today?FV=51832
PMT=0
I=14
N=22-14=8
PV=18170.18Suppose you deposit $1597 into an account 7 years from today into an account that earns 14%. How much will the account be worth 13 years from today?PMT=0
I=14
N=13-7=6
PV=1597
FV=3505.37Derek will deposit $900 per year for the 11 years, and interest rate is 7%. The first deposit is made today. How much will be in the account 10 years from today?N=11
PMT=900
PV=0
I=7
FV=14205.24you will receive $100 per year forever starting from 3 years from today, what is the value of this perpetuity today with a 10% of annual interest rate?PV=PMT/r=100/.10=1000
N=2 (because it is the year before the first payment)
FV=1000 in year 3
I=10
PMT=0
PV=826.45You will receive $100 per year one year from today. This payment will grow at constant rate of 3% forever. What is the value of this perpetuity today with 10% of annual interest rate?PV=100/0.10-0.03
PV=1428.57APR 10% paying semi-annually
APR 10% paying quarterly
APR 10% paying per 2 yearsr=.10/2=.05
r=.10/4=.025
r=(1+.10)^2-1=.21APR 10% paying semi-annually
APR 10% paying quarterly
APR 10% paying continuously
What is the EAR?EAR=[(1+ APR/m)^m]-1
[(1+.10/2)^2]-1=.1025
[(1+.10/4)^4]-1=.1038
(e^.10)-1=.105an investment that pays $100 every quarter for 10 years is worth ____ today. assume a 8% annual percentage rate and the first payment is made 3 months from today.PMT=100
N=4(quarterly)*10=40
I=8/4=2
FV=0
PV=2735.55An investment that pays $150 per month forever. the first payment starts 1 month from today. if the annual interest rate is 12%, the investment is worth $____ today.PV=PMT/R
PV=15/1%....12%/12 (monthly)=1%what is the value today of a money machine that will pay $4311 per year for 11 years? Assuming the first payment is made one year from today and the interest rate is 8%.PMT=4311
N=11
I=8
FV=0
PV=30776.07A money machine pays $4290 per year fro 13 years first payment is made 2 years from today and the interest rate is 8%.PMT=4290
N=13
I=8
FV=0
PV=33907.20
FV=33907.20
N=1 ( year before the payment is made)
PMT=0
I=8
PV=31395.56a money machine pays $1296 every six months for 30 years and the first payment is made six months from today and the interest rate is 15%PMT=1296
N=30*2( two periods of six months)=60
I=15/2
FV=0
PV=17054.56What is the value today of a machine that will pay $1293 per year for 33 years? the first payment is made today and there are 33 total payments. the interest rate is 4%.PMT=1293
N=33
I=4
FV=0
PV=23464.90585
PV=23464.90585(1+.04)=24403.50208Derek will deposit $2230 per year for 10 years in an account that earns 5%. the first deposit is made today. how much will be in the account 10 years from today?N=10
I=5
PMT=2230
PV=0
FV=31681.3537
FV=31681.3537(1+.05)=33265.19Derek will deposit $3721 per year for 15 years into an account that earns 8%. assuming the first deposit is made 4 years from today, how much will be in the account 36 years from today?
what if the first deposit was made next...today?N=15
I=8
PV=0
PMT=3721
FV=101033.0159
36-[15+3 (one year before deposit is made)]=18
101033.0159(1+.08)^18=403729.90
36-15=21 FOR NEXT YEAR
36-14= FOR TODAYWhat is the value today of receiving $1925 per year forever? assume the 1st payment is made next year and the discount rate is 8%.1925/.08=24062.50what is the value today of receiving $1619 per year forever? assume the first payment is made 10 years from today and the discount rate is 8%.1619/.08=20237.5
20237.5*[1/1+.08^9( year before payment is made)]=10123.79if you are willing to pay $25110 today to receive a perpetuity with first payment occurring next year then the payment must be $____. assume a 4% discount rate25110*.04=1004.4if you are willing to pay $41562 today to receive $4254 per year forever then your required rate of return must be ____%. assume the first payment is received one year from today.4254/41562=.102353111=10.24%an investor plans the following investment for the next 20 years, 4 years of $10275 per year, 16 years of $13325 per year. she thinks his investments will earn 6% a year for the first 4 years and then 8% for the last 16 years. how much would the investor have to set aside today if she wants to fund the entire account?i=8
n=16
pmt=13325
fv=0
pv=117944.49
fv=117944.49
i=6
n=4
pmt=10275
pv=129027.04a father deposits 64 every month to a college fund. the fund pays 5.64% APR. the first deposit is in one month, the daughter starts college in 13 years, how much money will he have saved for his daughter at the end of the 13th year?N=12*13=156 MONTHS
PMT=64
I=5.64/12=.47
PV=0
FV=14681.32An investment banker decides to invest his year end bonus each year into a mutual fund. he is able to earn 12% per year. if he projects the following cash flow for the next 4 years, what is the future value if his account at the end of the 4th year?
year 1 bonus=20000, year 2 bonus=30000, year 3 bonus=35000, year 4 bonus=40000year 1 bonus=20000, year 2 bonus=30000, year 3 bonus=35000, year 4 bonus=40000
20000*(1+12%)^3=28098.56
30000*(1+12%)^2=37632
35000*(1+12%)^1=39200
year 4=40000
SUM OF ALL ANSWERS=144930.56Young graduate has been offered a timeshare , must pay $1765 at the end of each year for 19 years, and the discount rate is 5%. what is the cost of this opportunity in today's dollars? in other words, what is the most the graduate should be willing to pay today instead of making payments?N=19
I=5
FV=0
PMT=1795
PV=21693.15A project generates a cash flow of $496.190 per year (end of year cash flows). if the project can last 15 more years, what is its value today of the remaining cash flows if the cost of capital is 9%?n=15
i=9
pmt=496190
fv=0
pv=3999632.99a father saves money for his son's college tuition, put away $1453 every six months for the next 10 years, the account will pay 8% APR with semi-annual compounding. what is the future value of this investment?i=8/2=4
n=10*2=20
pmt=1453
pv=0
fv=43267.55a company generates $91366 in cash flow every year, investors want 8% annual return to buy the company, ow much are they willing to pay? lets assume the company will last forever for valuing the opportunity.pv perpetuity=pmt/r
91366/.08=1142075a loan shark offers $9834 today in exchange for paying him $1493 per year forever. what is the annual rate of interest on this loan?1493/9834=.1518*100=15.18%Today is Derek's 25th birthday. Derek has been advised that he needs to have $3425637 in his retirement account the day he turns 65. He estimates his retirement account will pay 5% interest. assume he chooses not to deposit anything today. rather he chooses to make annual deposits into the retirement account starting on his 26th birthday and ending on his 65th birthday. how much must those deposits be?N=65-25( ONE YEAR BEFORE HE STARTS DEPOSITING)=40
PV=0
FV=3425637
I=5
PMT=28357.98If Derek plans to deposit $13566 into his retirement account on each birthday beginning with his 26th and the account earns 7%. how long will it take him to accumulate $3300668?I=7
PV=0
PMT=-13566
FV=3300668
N=42.75Derek decides that he needs $113026 oer year in retirement to cover his living expenses. Therefore, he wants to withdraw $110326 on each birthday from his 66th to his 89th. How much will he need in his retirement account on his 65th birthday? In terest rate is 9%.N=89-65 (YEAR BEFORE HE STARTS TO WITHDRAW)=24
I=9
PMT=-113026
FV=0
PV=1097099.502Derek plans to retire on his 65th birthday. However, he plans to work part time until he turns 72. during these years of part time work, he will neither make deposits to nor take withdrawals from his retirement account. exactly one year after the day he turns 72 when he fully retires, eh will want to have $3175068 in his retirement account. he will make contributions to his retirement account from his 26th birthday to his 65th birthday. to reach his goal, what must the contributions be? the interest rate is 6%.N=72-65=7+1=8
I=6
FV=3175068
PMT=0
PV=1992076.943
FV=1992076.943
N=65-26=39+1=40
I=6
PV=0
PMT=12871.876Derek plans to retire on his 65th birthday. he plans to work until he turns 71. exactly one year after he turns 71 when he fully retires, he will begin to make annual withdrawals of $150491 from his retirement account until he turns 86, make contributions to his retirement account from his 26th birthday to his 65th birthday. to reach his goal, what must the contributions be? the interest rate is 10%.N=86-72=14+1=15
PMT=150491
I=10
FV=0
PV=1144646.511
FV=1144646.511
N=71-65=6
I=10
PMT=0
PV=646123.1146
N=65-26=39+1=40
I=10
PV=0
FV=646123.1146
PMT=1459.8598Derek borrows $263882 to buy a house. he has a 30 year mortgage with a rate of 5.87%. the monthly mortgage payment is $____.N=30*12=360
I=5.87/12
PV=263882
FV=0
PMT=1560.1Derek borrow $344339 to buy a house. he has 30 year mortgage 5.46%. after making 97 payments how much does he owe on the mortgage?N=30*12=360
I=5.46/12
FV=0
PMT=344339
FV=0
PMT=1946.49
N=360-97=263
I=5.46/12
FV=0
PMT=1946.49
PV=298164.76Derek borrows $42854 to buy a car. he will make monthly payments for 6 years. the car loan has an interest rate of 6.44%. what will the payments be?N=6*12=72
I=6.44/12
PV=42854
FV=0
PMT=719.15Derek borrow $35307 to buy a car. he will make monthly payments for 6 years. the car loan has an interest rate of 5.86%. after 15 months he decides to pay off his car loan. how much must he give back?N=6*12=72
I=5.86/12
PV=35307
FV=0
PMT=582.81
N=72-15=57
I=5.86/12
PMT=582.81
FV=0
PV=28936.10Derek decides to buy a new car. the dealership offers him a choice of paying $504 per month for 5 years ( with the first payment due next month) or paying some amount today. he can borrow money from his bank and buy the car. the bank requires a 4% interest rate. what is the most that he would be willing to pay today rather than making the payments?N=5*12=60
PMT=504
I=4/12
FV=0
PV=27366.73Dede decides to buy a new car. the dealership offers him a choice of paying $558 per month for 5 years ( with the first payment due next month) or paying some amount today. he can borrows money from his bank to buy the car. the bank requires a 6% interest rate. what is the most that he would be willing to pay today rather than making the payments?N=5*12=60
I=6/12
PMT=558
FV=0
PV=28862.8629Derek wants to withdraw $10320 from his account 4 years from today and $13466 from his account 15 years from today. he currently has $2183 in the account. how much must he deposit each year for the next 15 years? assume a 5.89% interest rate. his account must equal zero by year 15 but may be negative prior to thatFV=10320
N=4
I=5.89
PMT=0
PV=8208.43
PV=8208.43-2183=6025.43
FV=13466
I=5.89
N=15
PMT=1199.3448Derek currently has $14326 in an account that pays 5%. he will withdraw $5220 every other year beginning next year until he has taken 6 withdrawals. he will deposit $14326 every other year beginning two years from today until he has made 6 deposits. ow much will be in the account 23 years from today?USE TIMELINE
I=[(1+.05)^2]-1=.1025,PV=0,N=6,PMT=5220,find FV=40530.44
PV=-14326, N=6,PMT=-14326,I=10.25,find FV=136960.98
PV=136960.98,N=11,I=5,PMT=0,find FV=234249.7546
PV=40530.44,N=23-12=11,I=5,PMT=0,find FV=72786.85
234249.7546-72786.85=161462.9046Derek plans to buy a $31598 car. the dealership offers a zero percent financing for 48 months with the first payment due at signing (today). Derek would be willing to pay for the car in full today if the dealership offers him $____ cash back. he can borrow money from his bank at an interest rate of 5.36%.PMT=31598/48=658.29
I=5.36/12=.446
FV=0
N=48
PV=28387.92
PV=28387.92
N=1
I=.446
PMT=0
FV=28514.53
28514.53-31598=3083.47Assume a bank offers an effective annual rate of 5%. if compounding is quarterly, what is the APR?EAR=(1+APR/4)^4-1=5%
1.05^1/4=1+APR/4
APR=4*(1.05^1/4)-1=.05ABC co issues a zero coupon bond with 10 years to maturity. investor's required rate of return is 2.25%. what is the price of the zero coupon bond of ABC co?N=10
I=2.25
PMT=0
FV=1000
PV=800.5101ABC corporation wants to issue a fixed coupon bond. the firm has estimated that its cost of debt is 8%. it has decided to issue 30 per fixed coupon bond. the annual coupon rate is 5%, paid semi annually. what is the price of ABC corporation's fixed coupon bond?N=30*2=60
I=8*2=4
PMT=1000*.05/2=25
FV=1000
PV=660.6477The price of the fixed coupon bond is %660.6477, the firm has estimated that its cost of debt is 8. the bond has maturity of 30 years and padi semi annually. what is the coupon rate of this dixed coupon bond?N=30*2
I=8/2=4
PV=-660.65
PMT=1000*.05/2=25
FV=1000
Coupon rate =PMT/FV*2
25/1000*2=5%ABC corp wants to issue a fixed coupon bond, it has decided to issue 30 year fixed coupon bond. the annual coupon rate is 5%, paid semi annually. what is the price of ABC corp's fixed coupon r=bond with different YTM?
YTM=3%,5%,8%I=3%/2=1.5,N=30*2=60,FV=1000,PMT=1000*.05/2=25,find PV=1393.80
I=5%/2=2.5,N=60,FV=1000,PMT=25, find PV=1000
I=8%/2=4,N=60,FV=1000,PMT=25,find PV=660.65suppose you deposit $2247.00 into an account today. in 11 years the account is worth $3692. the account earned ____% per year.N=11
PV=2247
FV=3692
PMT=0
I=4.62Suppose you deposit $1813 into an account today that earns 11%. it will take ____ years for the account to be worth $2954.PV=1813
I=11
FV=3692
PMT=0
N=4.68Assume the real rate of return is 2.97% and the inflation rate is 4.59%. find the nominal rate of return using the exact formula.(1+.0297)*(1+.0459)=1.07696-1=.07696Suppose you deposit $1561 into an account 5 years from today into an account that earns 7%. how much will the account be worth 15 years from today?15-5=10 years
1561*(1+.07)^10=3070.72Suppose you need to have $52901 in an account 17 years from today and that the account pays 10%. how much do you have to deposit 6 years from today?n=11,i=1,pmt=0,fv=52901, find pv=18541.48Assume a par value of 1000. Caspian sea plans to isue a 17 year, semi annual pay bond that has a cpoupon rate of 8.03%. if the yeild to maturity for the bond is 7.57%, what will the price of the bond be?N=17*2=34
PMT=.0803*1000/2=40.15
FV=1000
I=7.57/2=3.785
PV=1043.5837Assume a par value of $1000 Caspian Sea plans to issue a 2 year, semi annual pay bond that has a coupon rate of 18%. if the ytm for the bond is 18%, what will the price of the bond be?N=2*2=4
PMT=.18*1000/2=90
FV=1000
I=18/2=9
PV=1000Caspian Sea drinks needs to raise $47 million by issuing bonds. it plans to issue a 12 year semi annual pay bond that has a coupon rate of 5.07%. the yield to maturity on the bond is expected to be 4.58%. how many bonds must Caspian sea issue?N=12*2=24
PMT=.0507*1000/2=25.35
FV=1000
I=4.58/2=2.29
PV=1044.85
47000000/1044.85=44982.53338The market price of a semi annual pay bond is $988.48. it has 23 years to maturity and a ytm of 7.29%. what is the coupon rate?N=23*2=46
FV=1000
I=7.29/2=3.645
PV=988.48
PMT=53.33
OR
PMT=coupon rate*par value/2The YTM for a 18 year STRIPS is 5.47%. if par value is $1000, then it should sell for $____.N=18*2=36
PMT=0
FV=1000
I=5.47/2=2.735
PV=378.56The market price of a 14 year STRIPS is $392. the YTM is ____%.N=14*2=28
PMT=0
FV=1000
PV=-392
I=3.40
3.40*2=6.8=YTMZachary is considering buying a bond issued by CSD that pays coupon interest semi annually, has 17 years remaining to maturity, and has a coupon rate of 6%. if the bond sells fro $990, then YTM is ____%. assume a $1000 par value.N=17*2=37
PMT=.06*1000/2=30
FV=1000
PV=-990
I=3.05
3.05*2=6.10=YTMdavid is considering buying some bonds to add to his recently started retirement accounts. he is looking at a bond issued by ABC that pays coupon interest semi annually, has 20 years remaining to maturity, and has a ytm of 7.4%. if the market price of the bond is %5828.32 then bond's coupon rate must be ____%. assume a $6000 par value.N=20*2=40
FV=6000
PV=-5825.32
I=7.4/2=3.7
PMT=213.71
213.71/6000*2=7%James who is the CFO of BAX is considering a plan to raise $23000000 by selling bonds. if the bonds have a $5000 par value, matures in 20 years, semi annually, have a coupon rate of 6%, and YTM of 5.9%. Then James will compute that BAX must sell ____bonds.coupon rate=PMT/FV
.06/2(SEMI ANNUALLY)=3%=PMT/5000
3%*5000=150=PMT
N=0*2=40,FV=5000,I=5.9/2=2.75,PMT=150, find PV=5058.26
23000000/5058.26=45447Dawgpound incorporated has a bond trading on the secondary market that will mature in 4 years. The bond pays an annual coupon with a coupon rate of 8%. Dawgpound bonds currently trade $899, with a facr value of $1000. if you purchase the bond at this price, whats it your YTM?N=4
PV=-899
PMT=.08*1000=80
FV=1000
I=11.27*2=ytm=22.54Leonard Cooper is looking to invest in a four year bond from Big Bang Productions corporation. the company makes semi annual coupon payments of $50 (every 6 months) with a face value of $1000. if the market price of the bonds is $1035, what YTM will Leonard earn (express as ear)?N=4*2=8
PV=-1035
PMT=50
FV=1000
I=4.47 every 6 months
EAR=[(1+4.47%)^2]-1Leonidas corporation has bonds trading on the secondary markets for $983.67. the bonds will mature in 7 years and have a face value of $1000. the bonds pay semi annual coupons with a 7.34% APR. what is the YTM for an investor who buys the bonds today? (express as APR)N=7*2=14
PV=-983.67
PMT=7.34%*1000/2
FV=1000
I=3.09
3.09%*2=6.18% APRA taxable bond with a coupon rate of 7% has amarket price of 98.01% of par. the bond matures in 10 years and pays semi annually. assume an investor has a 31% marginal tax rate. the investor would prefer otherwise identical tax exempt bond if its YTM was more than___%.N=10*2=20
PMT=.07*1000/2
PV=1000*98.01%
FV=1000
I=3.64
3.64*2=7.28=YTM
YTM*(1-.31)=5.0232A tax exempt municipal bond has YTm of 4.99%. an investor who has marginal tax rate of 20%, woudl prefer and otherwise identical taxable corporate bond if it had a YTM of more than ____%.YTM=r(1-t)
ytm=.0499(1-20%)==.62375The market price of semi annual pay bond is $953.71. it has 12 years to maturity and a coupon rate of 5%. par value is $1000. what is the YTM?N=12*2=24
PMT=5%*1000/2
FV=1000
PV=-953.71
I=2.766
2.77%*2=5.53%The market price of semi annual pay bonds is $964.75. it has 11 years to maturity and a coupon rate of 7%. par values is $1000. what is the effective annual yield?N=11*2=22
PMT=7%*1000/2
FV=1000
PV=-964.75
I=3.737
3.74*2=7.47%=YTM
effective annual yield=[(1+YTM/2)^2]-1A firm issues preferred stock with a dividend of $2.12. if the appropriate discount rate is 5.76%. what is the value of the preferred stock?P=2.12/.0576=36.805the market price of a share of preferred stock is $22.83 and the dividend is $2.17. what discount rate fif the market use to value the stock?k (discount rate)=2.17/22.83=9.505%the market price of share of preferred stock is $26.37. the market uses a discount rate of 5.50%. what is the dividend?26.37*.0550=1.45035caspian sea is considering raising $40 million by issuing preferred stock. they believe the market will use a discount rate of 9.33% to value the preferred stock which will pay a dividend of 4.54. how many shares will they need to issue?P=4.54/0.0933=48.66
400000000/48.66=822030.4151A firm will pay a dividend of $2.90 next year. the dividend is expected to grow at a constant rate of 3.64% forever and the required rate of return is 00.89%. what is the value of the stock?P=2.90/.1089-.0364=40A firm issues preferred stock with a dividend of $3. if the appropriate discount rate is 10% what is the value of the preferred stock?P=D/r
3/10%=30The market price of a stock is $46.77 and it just paid $4.81 dividend. the dividend is expected to grow at 4.42% forever. what is the required rate of return for the stock?P=d(1+g)/k-g
46.77=4.81*(1+.0442)/k-.0442
46.77(k-.0442)=5.022602
k-.0442=5.02/46.77+.0442
k=15.158Johnson foods inc. just paid a dividend of $10. its dividends are expected to grow at 40% annual rate forever. if you required a 15% rate of return on investments of this risk level, what is the current stock price?p=d(1+g)/r-g
10*(1+.04)/15%-4%=94.55ABC company will pay an annual dividend of 3$ per share one year from today. the dividends is expected to grow at a constant rate of 7% permanently. the market requires 15% what is the current price of the stock?P=3/15%-7%=37.5the price of a stock in the market is $62. you know that the firm has just paid dividend of $5 per share. the dividend growth rate is expected to be a 6% forever. what is the investor's required rate of return for this stock?r=(d(1+g)/p)+g
5*(1+6%)/62+6%to value the stock of ABC we have the following estimates for the dividend payout of this company ABC will pay $2 one year from today, $3 two years from today, an $3.50 three years from today. after that the dividend grows at 5% forever. what is the price of ABCs stock today using a requires rate of return as 15%?P3=D4(1+g)/r-g
3.50(1+5%)/15%-5%=36.75
CF=0,C01=2,C02=3,C03=3.50+36.75
I=15
Compute NPV=30.47the risk free rate is 2% and the market risk premium is 5.5%. a stock with a B(beta) of 1.20 will have an expected return of ____%.r=rf(risk free rate)+B(rm-rf)[market risk premium]
2%+(1.2*5.5%)=8.6%the risk free rate is 3% and the expected return on themarket is 9.75%. A stock with B of .90 will have an expected return of ____%.r=rf(risk free rate)+B(rm[return on the market]-rf)
r=3%+.9(9.75%-3%)
=9.075%the risk free rate is 2.5% and the market prisk premium is 6%. a stock with a B of 1040 just paid a dividend of $3. the dividend ois expected to grow at 4% forever. what is the value of the stock?r=2.5%+1.40*6%=10.9%
P=3*(1+.04)/10.9%-4%=45.22a firm just paid a dividend of $4.54. the dividend is expected to grow at a constant rate of 3.49% forever and the required rate of return is 11.68%. what is the value of the stock?d*(1+g/r-g)
4.54*(1+.0349/.1168-.0349)=57.37the risk free rate is 2.50% and the market risk premium is 6%. a stock with B of 1.40 just paid a dividend of $3. the dividend is expected to grow at 20% for 3 years and then grow at 4% forever. what is the value of the stock?d1=3*(1+.2)=3.6,d2=3.6*(1.20)^2=5.184,d3=5.184*(1.2)^3=8.957952
8.957952*(1+.04)/k-.04
k=.0250+1.40*.06=.109
9.31627008/.069=135.018407caspian sea drinks needs to raise $22 million by issuing additional shares of stock. if the market estimates CSD will pay a dividend of $1.37 next year which will grow at 3.53% forever and the cost of equity to be 11.44%, then how many shares of stock must CSD sell?P=1.37/.1144-.0353=17.32
22000000/17.23=1270207.85Caspian sea drink purchasing water system. RGM-7000 is new equipment. costs 12 million, depreciates fully in 19 years, removed for free. RGM will increase revenue by 3.33 million every year and increase costs by 752017 every year. marginal tax rate is 27%. incremental cash flows by RGM are?aicf=(revenue-cost-depreciation)(1-tax rate)+deprecation
depreciation=12 million-0/19=631578.94736
aicf=(3.33 million-752017-631578.95)(1-.27)+631578.95=2052453.91new equipment costs 14 million, depreciates in 15 years, removed for free. RGM will increase revenues by 2.89 million every year and increase costs by 782765 every year. marginal tax is 20%. internal rate of return is?new equipment costs 15 million, depreciates in 20 years, removed for free. increases revenue by 3.56 million every year and increase costs by 570710 every year. marginal tax rate is 21%. if caspian uses 8% discount rate, what is net present value?caspian sea drinks is considering the production of a diet drink. the expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $25 million. the plant and equipment will be depreciated over 10 years to a book value of $1 million and sold for that amount in year 10. networking capital will increase by 1.23 million at the beginning of the project and will be recovered at the end. the new diet drink will produce revenues of 8.81 million per year and cost 2.21 million per year over the 10 year life of the project. marketing estimates 10% of the buyers of the diet drink will be people who will switch from the regular drink. the marginal tax rate is 24%. the WACC is 10%. find the NPVICF=-(25+1.23)=-26.23
Depreciation=(25-1)/10=2.4
AICF=((8.81-2.21)*(1-10%)-2.4)*(1-24%)+2.4=5.0904
ECF=5.0904+1+1.23=7.3204what discount rate would make you indifferent between receiving $3414 per year forever and $5136 per year for 29 years? the first payment of both cash flow streams occur in one year.PV=3414/r......PV=5136*[1-1/(1+r)^29]
3414/r=5136*[1-1/(1+r)^29]
3414/5136=[1-1/(1+r)^29]
0.6422-1=1/(1+r)^29
-0.3578*(1+r)^29=1
1/-0.3578=(1+r)^29
2.79486^1/29=1+r
1.036014091-1=r
r=.0360

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