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You are the CFO of the firm Ponce deLeon Foods. The board has decided to offer an early retirement plan whereby the typical 55-year-old worker can retire now with a small cash severance and draw a pension of $10,000 a year, expected to last for 30 years (the first payment would be made one year from now). You plan to set aside sufficient money now to fund the plan and have secured guarantees from your insurance company promising you an 8% annual return on all funds deposited by you, to meet these projected payments based on the terms above, and to bear any risk (such as interest-rate surprises or greater-than-expected lifespans). You expect 100 workers to take advantage of the plan, so you must fund expected pension payouts of $1 million a year for 30 years.
The Amalgamated Paper-or-Plastic Workers have objected to the plan, since the pension payments "lose purchasing power" over time due to inflation. They propose an alternative plan of an $8,000 pension (also beginning in a year) that grows each year at a fixed rate of 5%. They claim that this plan should be attractive to the company, since it needs to pay less money to pensioners ($8,000 vs. $10,000) during today's difficult economic times.
How much will it cost you for an up-front payment to fund each plan?
Fairfax Pizza stock is currently priced at 87.48 dollars per share and is expected to pay its next dividend, which is expected to be 2.34 dollars, in 1 year. The stock has a beta of 0.63. The market has an expected return of 16.39 percent, the risk-f..
How much will the total taxes of Western Exploration Corp. be reduced as a result of the tax loss carry forward?
Howett Pockett, Inc., plans to issue 10.4 million new shares of its stock. Calculate the gross proceeds per share.
Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $4000 at the end of each of the next three years. The opportunity requires an initial investment of $1000 plus an additional investme..
Calculate the beta of the portfolio and use the capital asset pricing model (CAPM) to compute the expected rate of return for the portfolio.
What is the importance of interest rates in both Bond and Stock Analyses?
ABC is a manufacturer. Long term debt, with an incremental borrowing rate of 6% Capital stock with the following information. Risk free rate 4%, market rate of return 12%, Beta 1.25. Compute the weighted average cost of capital (WACC)? Using CAPM com..
Assume that you contribute $180 per month to a retirement plan for 15 years. What is the value of your retirement plan after the 40 years?
LKD Co. has 12 percent coupon bonds with a YTM of 9.9 percent. The current yield on these bonds is 10.4 percent. How many years do these bonds have left until they mature? (Do not round intermediate calculations. Round your answer to 2 decimal places..
Leasehold improvements are substantial costs incurred by Starbucks to outfit, remodel, and improve leased retail outlets.
Explain what each of the following types of mutual funds are, list TWO examples of each of the AND what their 3yr rate of return has been:
Thomson Engineering is issuing new 10-year bonds that have 20 warrants attached. If not for the attached warrants, the bonds would carry a 9% interest rate. However, with the warrants attached the bonds will pay a 7% annual coupon and still sell for ..
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