User Account

All Pages

Future value and annuity payments

Assignment Help Finance Basics
Reference no: EM13791866

1. Future Value and Annuity Payments Christy and Michael are trying to decide if they will have enough money to retire early in 15 years, at age 60. Their current assets include $250,000 in retirement plans and $100,000 in other investments. Together, they contribute $30,000 per year to their retirement plans and another $6,000 to other investments.

a. If their assets already in their retirement plans and other investments grow at 9 percent per year, how much money will they have when they turn 60?

b. After they retire, they will invest their wealth more conservatively and it will earn 6 percent per year. What will be the amount of money that they will be able to withdraw annually if they expect to live for 30 years in retirement?

2. Cost of Capital (WACC). Suppose your company has decided to use a divisional WACC approach to analyze projects. The firm currently has 2 divisions, A and B, with betas for each division of 0.5 and 1.5, respectively. If all current and future projects will be financed with half debt and half equity, and if the current cost of equity (based on an average firm beta of 1.0 and a current risk-free rate of 5%) is 18% and the after-tax yield on the company's bonds is 6%, what are the WACCs for divisions A and B?

Hint: First Solve for Market Risk Premium (MRP) using the avg firm beta. MRP = (Km-Rf) Then plug this MRP into the other equations as needed to figure the following:

a. Division A WACC?

b. Division B WACC?

Reference no: EM13791866

Questions Cloud

Examine multicultural hot spots in assessment and diagnosis : Examine Multicultural Hot Spots in Assessment and Diagnosis
Compute the total asset turnover rate : Compute the total asset turnover rate assuming that total revenues in 2012 were $682,500. Round to the nearest hundredth, e.g. 3.33.
Prepare the adjusting entries for the month : Prepare the adjusting entries for the month of June. Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances. Use T accounts.
Adaptation, motivation, and conflict management : Why should employee teams be kept from addressing employee benefits and other conditions of employment?
Future value and annuity payments : Christy and Michael are trying to decide if they will have enough money to retire early in 15 years, at age 60. Their current assets include $250,000 in retirement plans and $100,000 in other investments. Together, they contribute $30,000 per year..
Describe the company''s supply chain : Describe the company's supply chain, Identify a process internal to the company that you wish to analyze.
Key propositions of postmodernism : Identify and explain Arrigo's three key propositions of postmodernism. Explain your response using sufficient detail and citing specific examples where applicable. Be sure to apply the course materials in your discussion.
Understanding of the cultural similarities and differences : Given your understanding of the cultural similarities and differences, what would you recommend that each side do (or avoid doing) to resolve the situation?
How can we reduce poverty in the united states : How does the process of critical thinking you used relate to or differ from the process you used to find content for your answer - How can you use critical thinking in other areas?

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the after tax interest payment

What is the after tax interest payment on a $200,000, 30 year fixed rate mortgage in MONTH 30, that has an annual fixed interest rate of 5%? Payments are made monthly. The marginal tax rate of the household is 30%. (a) $661 (b) $561 (c) $300 (d) $..

  You plan to deposit the funds in a mutual fund that you

you want to go to europe 5 years from now and you can save 3100 per year beginning one year from today. you plan to

  How much of each bond will you hold in your portfolio

How much of each bond will you hold in your portfolio and how will these fractions change next year if target duration is now 9 years - Calculate the total value added of all the manager's decisions this period.

  Computer the margin of safety

Embleton Corporation estimates that variable costs will be 40 percent of sales, and fixed costs will total $900, 000. The selling price of the product is $5.

  Set up the amortization schedule for 10000 loan to be

a. set up an amortization schedule for a 10000 loan to be repaid in equal installments at the end of each of the next 5

  Calculate company margin of safety

Small Fries is a Corporation that processes gourmet potatoes into little french fries. Each package has a contribution margin of $2.50. Small Fries have total fixed costs of $40,000 each period.

  Information about capital gains and losses

Throughout 2007, Gorilla Corporation has net short-term capital gains of $90,000, net long term capital losses of $570,000, and taxable income from other sources of $1.5 million. Prior years' transactions included the following:

  Expected return on the market using the capm model

CAPM is one of the more popular models for determining the risk premium on a stock. If the Expected Return on the Stock is 20.38 percent, the Risk-Free Rate is 9.0 percent, and the Beta for Stock i is 1.75. Find the Expected Return on the market u..

  Assume firm makes the following policy changes if the

suppose a firm makes the following policy changes. if the change means that external non-spontaneous financial

  Explain why you would change your nominal required rate

Explain why you would change your nominal required rate of return if you expected the rate of inflation to go from 0 (no inflation) to 4 percent. Give example of what would happen if you did not change your required rate of return under these cond..

  Determining the interest rate swap

Now assume the swap contract start from now on and the current zero rates are in the table below. Compute how much the swap value right now for fixed payment side.

  Interest equivalent factor

Interest equivalent factor,  Lori Stratton is considering investing in a bond that provides a yield of 8.35 percent or a preferred share with a yield of 7.09 percent. Lori lives in Ontario and at her level of taxable income, the federal tax rate is ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd