Reference no: EM131683579
1) Bill is shopping for a new car that is priced the same at two dealers for $42,000 . The difference in the offers of the two dealers is the financing arrangements as follows.
Dealer A has offered $7,000 as a trade-in on his old car, is offering the new car for payments of $799.00 monthly for four years.
Dealer B has offered $8,000 as the trade-in value and is offering the new car for lower payments of $649.00 monthly but for 5 years.
If both options are financially feasible for Bill and everything else is equal, which offer is the best financially?
2) Veronica has decided to use her wealth to start a consumer loan business for residential home improvements. She will offer three types of loans with each having different compounding frequencies as shown below. Assume 52 weeks per year , 7 days per week, and 52 * 7 = 364 days per year
Determine the equal period payments for each alternative below to enable Veronica to earn 10% EAR on a $10,000 loan if they are paid off in full in two years?
a Determine the weekly payment with weekly compounding of interest.
c Determine the bi-weekly payment with bi-weekly Compounding of interest.
d Determine the monthly payment with daily compounding of interest.
3) Maria and Salvador have a grand plan. They will deposit their combined annual bonuses and other savings of $10,000 annually (annual end of year deposits) for the upcoming ten years and then take a year off from their jobs and live it up in Paris during year 11 by withdrawing $8,000 monthly at the beginning of each month. They also will withdraw an additional $15,000 at the end of year 10 for airfare, setting up an apartment. etc. The annuity in which they will invest pays an nominal annual rate of 4.75% compounded monthly.
How much will they have at the end of the Paris diversion (end of year 11) to pay for flying home and transitioning back to work?
4) Ellen is planning her retirement and has $1,000,000 in an annuity that earns 5% NAR compounded monthly.
a How many years can she receive benefits if she takes out $6,000 at beginning of each month if she reserves $50,00 to give to each of her two children when she dies?
b How much can she withdraw at the beginning of each month if she plans a future lifespan of 30 years if she reserves $50,00 for each of her two children when she dies?
5) Barney has $232,000 remaining in his retirement account that earns 6% NAR compounded monthly. He is 70 years old and wants to ease into retirement over ten years by withdrawing $50,000 today and then gradually deplete the fund by reducing the amount withdrawn by $5,000 each year thereafter (e.g. withdraw $50,000 today, withdraw $45,000 at the end of year 1, $40,000 at the end of year 2, through $0.00 in year 10). He will live on social security and Medicare after the retirement funds are depleted. Is this scheme possible? Explain why or why not. Assume end of year withdrawals.
6) Tim has inherited $200,000 that he is going to invest. He has narrowed down his choice to two investments.
Shares of a stock that can be purchased for $200 per share and is expected to pay dividends of $5 a share quarterly, and sold for $400 in 10 years.
A bond that can be purchased for $200,000, has a coupon rate of 4.125% paid semi-annually, and a face value of $250,000 that matures in 10 years
a Which should Tim choose to maximize the return on his investment. Explain why.
b What else should Marion consider when making a choice?
7) An investment advisor forecasts quarterly dividends for Underground Materials Corporation (UMC) stock as shown below. If the stock is forecasted to be selling for $175 at the end of 2015, what should one pay for this stock today to earn a 15% effective annual rate.
Year Calculations 2014 2014 2015 2015 2015 2015
Quarter 3 4 1 2 3 4
Dividends $2.00 $3.00 $3.50 $3.50 $4.00 $4.00
8) Ceyland Custom Prototypes, Inc. (CCP) has collected the following data for the past year. Prepare a formal income statement that contains the relevant subtotals. Show values in whole dollars (no cents). Assume that no taxes are due on asset purchases or sales.
Data Block Beginning of year During Year End of year
Materials Inventory $12,500 $14,000
Finished Inventory $7,800 $6,000
Accounts Receivable $74,000 $38,000
Accounts Payable $68,000 $62,000
Cash On Hand $330,500
Revenue $1,336,128
Direct Production Costs $412,560
Future Orders $127,000
Staff Expenses $424,600
Facility Expenses $287,200
Asset Sale $234,000
Asset Purchase $2,500,000
Depreciation $81,000
Interest Paid on Loan $66,000
New Loan $2,000,000
Dividends $22,800
Income Tax rate 20%
9) Hatcher Home Housewares, Inc. (HHH) has collected the following data for the past year. Assume that no taxes are due on asset purchases or sales. Prepare a formal cash flow statement that contains the relevant subtotals. Show values in whole dollars (no cents).
Data Block Beginning of year During Year End of year
Materials Inventory $12,500 $14,000
Finished Inventory $7,800 $6,000
Accounts Receivable $74,000 $38,000
Accounts Payable $68,000 $62,000
Cash On Hand $330,500
Revenue $1,296,360
Direct Production Costs $412,560
Future Orders $127,000
Staff Expenses $424,600
Facility Expenses $287,200
Asset Sale $234,000
Asset Purchase $2,500,000
Depreciation $81,000
Interest Paid on Loan $66,000
New loan $2,000,000
Dividends $22,800
Income Tax rate 20%
Net Income $20,000