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An institutional lender is willing to make a loan for $1 million on an office building at a 10 percent interest (accrual) rate with payments calculated using an 8 percent pay rate and a 30-year loan term. (That is, payments are calculated as if the interest rate were 8 percent with monthly payments over 30 years.) After the first five years the payments are to be adjusted so that the loan can be amortized over the remaining 25-year term.
a. What is the initial payment?
b. How much interest will accrue during the first year?
c. What will the balance be after five years?
d. What will the monthly payments be starting in year 6?
Acme Services’ CFO is considering whether to take on a new project that has average risk. She has collected the following information: • The company has outstanding bonds that mature in 26 years. What is Acme’s cost of preferred equity?
Consider a four-year project with the following information: initial fixed asset investment = $450,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $26; variable costs = $16; fixed costs = $140,000; quantit..
Since my daughter will arrive soon, I would like to set up a regular payment into an interest bearing account that will allow my daughter to attend college with little or no debt. My estimate is that I will need to have $50, 000 by the time she is 18..
Take Five Systems, a new start-up, is developing a new iPhone application (“app”) and provides you with the following assumptions: Development and testing of the new app will take four months. Month five is the first month of revenue generation. Init..
A 6.30 percent coupon bond with ten years left to maturity is priced to offer a 7.6 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. What is the change in price the bond will experience in dollars?
Describe how the profitability index approach may be used by a firm faced with a capital rationing investment funds constraint.
McGilla Golf has decided to sell a new line of golf clubs and would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $800 per set and have a variable cost of $400..
You are considering to borrow 1.25 million dollars to finance a capacity expansion project. The loan is payable in three equal annual installments in years 1, 2, and 3 after you receive the loan. The effective interest rate is 22%. If your tax rate i..
What is the transaction that involves one party agreeing to pay a fixed interest rate, based on a notional amount, and the other party agreeing to pay interest that is pegged to some reference rate?
Charleston Industrial revised its dividend policy and decided that it wants to maintain a retained earnings account of $1 million. The company's retained earnings account at the end of 2011 was $750,000, and it had earnings Available to common stockh..
Alex plans to purchase a callable bond of Horizon Inc. The bond is 20-year to maturity, carry 13.5% annual coupon, paid semi-annually, and have a$1,000 par value. The bond is selling now for $1,287 each. The bond can be called back in 7 years at a ca..
Steven, age 43, earns $80,000 annually; and his wage replacement ratio has been determined to be 80%. He expects inflation will average 3% for his entire life expectancy. He expects to work until 68, and live until 90. He anticipates an 8% return on ..
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