# HW2_2023

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Stevens Institute Of Technology *

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321

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Finance

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Feb 20, 2024

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Related Questions

Bill Clinton reportedly was paid an advance of $10.0
million to write his book My Life. Suppose the book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $7.8million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.2%per year.
a. What is the NPV of agreeing to write the book (ignoring any royalty payments)?
b. Assume that, once the book is finished, it is expected to generate royalties of
$4.8
million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of
30%
per year in perpetuity. What is the NPV of the book with the royalty payments?

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Answer the following problems and explain it step by step:
1. A man who is 30 years old at the start of the year, is considering getting an MFM degree. He currently earns $40,000 per year and expects to continue earning that amount for the rest of his working life (until age 65). He will give up his income for two years and will pay $20,000 per year in tuition, if he attends business school. In exchange, he expects a raise in his salary after completing his MFM. Assume that the post-graduation salary grows at a 5% annual rate and that the discount rate is 8%. What is the minimum expected starting salary after graduation for him that makes attending business school a positive-NPV investment? (Assuming that all cash flows happen at the end of each year.)
2. Bob and Rose are both 62 years old and plan to retire in 3 years. They will receive $5,000 per month after taxes from pension plans and $1,000 per month after taxes from Social Security after retirement. Regrettably, their living…

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6. Boilermaker Design, Inc. (BD) has an employment contract with its newly hired CEO. The contract requires a lump sum payment of $5 million be paid to the CEO upon the successful completion of her first three years of service. BD wants to set aside an equal amount of money at the end of each year to cover this anticipated payment and will earn 8% on the funds. How much must BD set aside each year for this purpose?

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2 Josh is an employee of a large Accounting firm in the city earning $120,000 per year. On weekends, to earn extra income, she established a small business selling Pokemon soft toys at the local market. In the first year of operating her business, she earned $8,000 revenue and incurred expenses of $10,000. Can he offset this loss against her salary income of $120,00? Would your answers will be different if Joss has been doing business this year for the past 5 years and the it was profitable on the first 3 years.

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Ashley Olson is early in her career and is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works with, she would really like to be a literary agent. She would like to go on her own in about 5 years and figures she'll need about $35,000 in capital to do so. Given that she thinks she can make about 7 percent on her money, use Worksheet 11.1 to answer the following questions.
How much would Ashley have to invest today, in one lump sum, to end up with $35,000 in 5 years? Round the answer to the nearest cent.
$
If she's starting from scratch, how much would she have to put away annually to accumulate the needed capital in 5 years? Round the answer to the nearest cent.
$
How about if she already has $10,000 socked away; how much would she have to put away annually to accumulate the required capital in 5 years? Round the answer to the nearest cent.
$
Given that Ashley has an idea of how…

*arrow_forward*

Mary Graham worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2 million. Salaries paid to her employees are expected to total $1.5 million. Operating expenses (i.e., rent, supplies, utility services) are expected to total $250,000. To begin the business, Mary must borrow $500,000 from her bank at an interest rate of 15 percent. Equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000, even though the depreciation expense for tax purposes is only $5,000 during the first year.a. Determine the (pre-tax) accounting profit for this venture.b. Determine the (pre-tax) economic profit for this venture.c. Which of the costs for this firm are explicit and which are implicit?

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esterday, Tom Brady, a professional football player, announced that after his retirement he'll move to the broadcasting booth as an Analyst for a reported $375 million, 10 year contract.
Given the following, what's the least amount of money Tom would accept TODAY as opposed to getting $37.5 million a year for the next ten years.
Tom retires today and begins his new job in-the-boothAll cash flows would occur at the end of each yearHe has a 5% DR.

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PLEASE ANSWER THE QUESTIONS BELOW AND BE SURE TO SHOW THE FORMULAS AND THE WORK. THANIK YOU :)
1) Janet purchased a new house for $120,000, obviously not in New York. She paid $35,000 down and agreed to pay the rest over the next 25 years in 25 equal end-of-year payments, plus 9% compound interest on the unpaid balance. What will these equal payments be?

*arrow_forward*

Alison Conroy is early in her career and is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works with, she would really like to be a literary agent. She would like to go on her own in about seven years and figures she'll need about $ 35,000 in capital to do so. Given that she thinks she can make about 11 percent on her money.
How much would Alison have to invest today, in one lump sum, to end up with $ 35,000 in seven years? Round the answer to two decimal places.
If she's starting from scratch, how much would she have to put away annually to accumulate the needed capital in seven years? Round the answer to two decimal places.
How about if she already has $ 15,000 socked away; how much would she have to put away annually to accumulate the required capital in seven years? Round the answer to two decimal places.
Given that Alison has an idea of how much she needs to save, briefly explain how…

*arrow_forward*

I. A house owner decided to renovate his property in 7 years where he will be paying 50,000 for the renovation. To prepare for this amount, he set four equal annual payments now. No further payments are made after 4 years. If money is worth 12% per annum, what annual payment is necessary? Show Cash Flow Diagram
II. As a member, Mr. Dela Cruz will deposit P300 with a savings and loan organization at the beginning of each 3 months for 12 years. If the organization pays interest at the rate of 1.4.% per 3 months. Find the sum to his credit just after the last deposit. Show Cash Flow Diagram

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Solve the following:
2. In purchasing of house, a man makes P720,000 down payment and agrees to pay P1,200,000 5 years later. Find the cash value of the house if money is worth 14% compounded semi-annually.
3. How much must a corporation deposit in a bank which credits interest at 12% compounded monthly to come up in 8 years with P2,500,000 needed for its expansion program?
4. On the birth of a child, a father wished to invest in a trust fund which gives 12% compounded quarterly. How much must he invest if he wants to accumulate P650,000 by the time the child reaches his 21st birthday?
5. To provide for a purchase of a car worth P950,000 as a gift to his mother 5 years from now. How much should Benjamin invest today at 18% compounded quarterly?
6. Mrs. Dela Cruz invested P70,000 at 12% compounded quarterly for 5 years and another P70,000 at 18% compounded semi-annually for the same length of time. Find the total amount of the two investments.
7. Four friends deposited…

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On January 1, 2020, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing $90,000 cash. The new company, Arkansas Sales and Service, has the following transactions during January.
1. Pays $6,000 in advance for 3 months’ rent of office, showroom, and repair space.
2. Purchases 40 personal computers at a cost of $1,500 each, 6 graphics computers at a cost of $2,500 each, and 25 printers at a cost of $300 each, paying cash upon delivery.
3. Sales, repair, and office employees earn $12,600 in salaries and wages during January, of which $3,000 was still payable at the end of January.
4. Sells 30 personal computers at $2,550 each, 4 graphics computers for $3,600 each, and 15 printers for $500 each; $75,000 is received in cash in January, and $23,400 is sold on a deferred payment basis.
5. Other operating expenses of $8,400 are incurred and paid for during January; $2,000 of incurred expenses are payable at January 31.…

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After a bad accident Anton receives a large sum in compensation. He is thinking about using it to invest in a stretch limousine to hire out for special occasions. The cost of the limousine is £100,000. Anton is due to retire in six years, at which stage he thinks he will be able to sell the limousine for £40,000. The net cash inflows for the venture, after allowing for the driver's wages and other direct expenses are: End of year Net cash flow (£) 1 10,000 2 15,000 3 20,000 4 20,000 5 20,000 6 15,000 (a) Find the payback period for this venture. (b) Calculate the net present value using a discount rate of 8%.

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Instructions:
1. Analyze the given scenario and choose what type of investment is best for Mr. Santos. Explain your answer. (include your analysis through computations)
Scenario:
Mr. Santos is a government employee, His time deposit account of P 500,000 with 4% interest p.a. maintained with BDO generates a monthly interest of P 1,334.00 (net of 20% withholding tax). He is not satisfied with the earnings that he was receiving.
One day, he talked to a BDO financial adviser to seek advice on where to place his money with a higher interest rate. The financial adviser explained to him the following options:
1. Treasury-Bills -placement 30 days 6% one year
2. Bonds issued by San Miguel Corporation Face Value per bond P 100,000, 6% yield, quarterly coupon rate, term 10 years.
3. PLDT preferred 12 % Shares of stocks par value, P 100 per share with Market value P 150 per share.
If you are Mr. Santos, what option are you going to choose?

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4.Owner Juana invested P100,000 to start her laundry business .During the first year of operations (2019), the company had a net income of P15,000. Juana invested additional P100,000 to grow the business.In 2020,the business earned P50,000.As of December31,2020,Juana’s capital balance is P200,000.How much isJuana’s withdrawal?

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Melannie Bayless has purchased a business building for $331,000. She expects to receive the following cash flows over a 10-year period:
Year 1: $43,000
Year 2: $58,500
Year 3-10: $89,000
What is the payback period for Melannie? Round your answer to one decimal place.fill in the blank
What is the accounting rate of return? Enter your answer as a whole percentage value (for example, 16% should be entered as "16" in the answer box).fill in the blank

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“Louis's firm had the following situations during the year:
Louis's CEO purchased a Ferrari for personal use and charged it to the company.
Louis added five additional weeks to its fiscal year so it could improve its income. The accounting period for the previous years were 52 weeks.
Equipment with a cost of £100,000 is reported at its market value of £150,000.
Recently, Louis purchased a beach house for his personal use. However, he plans on using it for company retreats and for hosting large clients. Hence, he decided to list the asset and the corresponding liability for this reason (he used a loan to purchase this asset).
Louis included £10,000 in accounts receivable and retained earnings for a service that he will provide next year. Since he is an honest man and will provide the service, he decided to record the amount this year.
The company had paid £3,000 for insurance but uses only £2,000 during the period. The accountant has recorded £3,000 as insurance…

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1. The home improvement center (HIC) has an employment contract with the newly hired CEO. The contract requires a lump-sum payment of 32.4 million dollars to be paid to the CEP upon the successful completion of her first five years of service. HIC, wants to set aside an equal amount of money at the end of each year to cover this anticipated cash outflow and will earn 7,25% on the funds. How much must HIC is set aside each year for this purpose?
a) 7 270 433
b)5 227 064
c)5 668 987
d) 5 606 026
e) 6 778 958

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1. Your sister is an incoming college freshman taking up a four-year course. Suppose that she wants to purchase a car immediately after graduating from college which will cost P750,000. How much should she invest at the end of every year in an investment fund that earns 9% annually to have enough money to buy the car upon graduation?
2. Mr. Dalisay applied for a bank loan with a principal of P150,000 to be paid after five years in order to purchase a vehicle. He negotiated for the stated rate of the loan at 6% wherein the current market rate is 10%.

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SEE MORE QUESTIONS

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Related Questions

Bill Clinton reportedly was paid an advance of $10.0
million to write his book My Life. Suppose the book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $7.8million a year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 10.2%per year.
a. What is the NPV of agreeing to write the book (ignoring any royalty payments)?
b. Assume that, once the book is finished, it is expected to generate royalties of
$4.8
million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of
30%
per year in perpetuity. What is the NPV of the book with the royalty payments?

*arrow_forward*

Answer the following problems and explain it step by step:
1. A man who is 30 years old at the start of the year, is considering getting an MFM degree. He currently earns $40,000 per year and expects to continue earning that amount for the rest of his working life (until age 65). He will give up his income for two years and will pay $20,000 per year in tuition, if he attends business school. In exchange, he expects a raise in his salary after completing his MFM. Assume that the post-graduation salary grows at a 5% annual rate and that the discount rate is 8%. What is the minimum expected starting salary after graduation for him that makes attending business school a positive-NPV investment? (Assuming that all cash flows happen at the end of each year.)
2. Bob and Rose are both 62 years old and plan to retire in 3 years. They will receive $5,000 per month after taxes from pension plans and $1,000 per month after taxes from Social Security after retirement. Regrettably, their living…

*arrow_forward*

6. Boilermaker Design, Inc. (BD) has an employment contract with its newly hired CEO. The contract requires a lump sum payment of $5 million be paid to the CEO upon the successful completion of her first three years of service. BD wants to set aside an equal amount of money at the end of each year to cover this anticipated payment and will earn 8% on the funds. How much must BD set aside each year for this purpose?

*arrow_forward*

2 Josh is an employee of a large Accounting firm in the city earning $120,000 per year. On weekends, to earn extra income, she established a small business selling Pokemon soft toys at the local market. In the first year of operating her business, she earned $8,000 revenue and incurred expenses of $10,000. Can he offset this loss against her salary income of $120,00? Would your answers will be different if Joss has been doing business this year for the past 5 years and the it was profitable on the first 3 years.

*arrow_forward*

Ashley Olson is early in her career and is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works with, she would really like to be a literary agent. She would like to go on her own in about 5 years and figures she'll need about $35,000 in capital to do so. Given that she thinks she can make about 7 percent on her money, use Worksheet 11.1 to answer the following questions.
How much would Ashley have to invest today, in one lump sum, to end up with $35,000 in 5 years? Round the answer to the nearest cent.
$
If she's starting from scratch, how much would she have to put away annually to accumulate the needed capital in 5 years? Round the answer to the nearest cent.
$
How about if she already has $10,000 socked away; how much would she have to put away annually to accumulate the required capital in 5 years? Round the answer to the nearest cent.
$
Given that Ashley has an idea of how…

*arrow_forward*

Mary Graham worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2 million. Salaries paid to her employees are expected to total $1.5 million. Operating expenses (i.e., rent, supplies, utility services) are expected to total $250,000. To begin the business, Mary must borrow $500,000 from her bank at an interest rate of 15 percent. Equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000, even though the depreciation expense for tax purposes is only $5,000 during the first year.a. Determine the (pre-tax) accounting profit for this venture.b. Determine the (pre-tax) economic profit for this venture.c. Which of the costs for this firm are explicit and which are implicit?

*arrow_forward*

esterday, Tom Brady, a professional football player, announced that after his retirement he'll move to the broadcasting booth as an Analyst for a reported $375 million, 10 year contract.
Given the following, what's the least amount of money Tom would accept TODAY as opposed to getting $37.5 million a year for the next ten years.
Tom retires today and begins his new job in-the-boothAll cash flows would occur at the end of each yearHe has a 5% DR.

*arrow_forward*

PLEASE ANSWER THE QUESTIONS BELOW AND BE SURE TO SHOW THE FORMULAS AND THE WORK. THANIK YOU :)
1) Janet purchased a new house for $120,000, obviously not in New York. She paid $35,000 down and agreed to pay the rest over the next 25 years in 25 equal end-of-year payments, plus 9% compound interest on the unpaid balance. What will these equal payments be?

*arrow_forward*

Alison Conroy is early in her career and is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works with, she would really like to be a literary agent. She would like to go on her own in about seven years and figures she'll need about $ 35,000 in capital to do so. Given that she thinks she can make about 11 percent on her money.
How much would Alison have to invest today, in one lump sum, to end up with $ 35,000 in seven years? Round the answer to two decimal places.
If she's starting from scratch, how much would she have to put away annually to accumulate the needed capital in seven years? Round the answer to two decimal places.
How about if she already has $ 15,000 socked away; how much would she have to put away annually to accumulate the required capital in seven years? Round the answer to two decimal places.
Given that Alison has an idea of how much she needs to save, briefly explain how…

*arrow_forward*

I. A house owner decided to renovate his property in 7 years where he will be paying 50,000 for the renovation. To prepare for this amount, he set four equal annual payments now. No further payments are made after 4 years. If money is worth 12% per annum, what annual payment is necessary? Show Cash Flow Diagram
II. As a member, Mr. Dela Cruz will deposit P300 with a savings and loan organization at the beginning of each 3 months for 12 years. If the organization pays interest at the rate of 1.4.% per 3 months. Find the sum to his credit just after the last deposit. Show Cash Flow Diagram

*arrow_forward*

Solve the following:
2. In purchasing of house, a man makes P720,000 down payment and agrees to pay P1,200,000 5 years later. Find the cash value of the house if money is worth 14% compounded semi-annually.
3. How much must a corporation deposit in a bank which credits interest at 12% compounded monthly to come up in 8 years with P2,500,000 needed for its expansion program?
4. On the birth of a child, a father wished to invest in a trust fund which gives 12% compounded quarterly. How much must he invest if he wants to accumulate P650,000 by the time the child reaches his 21st birthday?
5. To provide for a purchase of a car worth P950,000 as a gift to his mother 5 years from now. How much should Benjamin invest today at 18% compounded quarterly?
6. Mrs. Dela Cruz invested P70,000 at 12% compounded quarterly for 5 years and another P70,000 at 18% compounded semi-annually for the same length of time. Find the total amount of the two investments.
7. Four friends deposited…

*arrow_forward*

On January 1, 2020, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing $90,000 cash. The new company, Arkansas Sales and Service, has the following transactions during January.
1. Pays $6,000 in advance for 3 months’ rent of office, showroom, and repair space.
2. Purchases 40 personal computers at a cost of $1,500 each, 6 graphics computers at a cost of $2,500 each, and 25 printers at a cost of $300 each, paying cash upon delivery.
3. Sales, repair, and office employees earn $12,600 in salaries and wages during January, of which $3,000 was still payable at the end of January.
4. Sells 30 personal computers at $2,550 each, 4 graphics computers for $3,600 each, and 15 printers for $500 each; $75,000 is received in cash in January, and $23,400 is sold on a deferred payment basis.
5. Other operating expenses of $8,400 are incurred and paid for during January; $2,000 of incurred expenses are payable at January 31.…

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Recommended textbooks for you

Cornerstones of Cost Management (Cornerstones Ser...

Accounting

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Cengage Learning

Cornerstones of Cost Management (Cornerstones Ser...

Accounting

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Cengage Learning