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A father is now planning a savings program to put his daughter through college. She is 13, plans to enroll at the university in 5 years, and she should graduate 4 years later. Currently, the annual cost (for everything - food, clothing, tuition, books, transportation, and so forth) is $20,000, but these costs are expected to increase by 5% annually. The college requires total payment at the start of the year. She now has $7,000 in a college savings account that pays 7% annually. Her father will make six equal annual deposits into her account; the first deposit today and sixth on the day she starts college. How large must each of the six payments be? Do not round intermediate calculations. Round your answer to the nearest dollar. [Hint: Calculate the cost (inflated at 5%) for each year of college and find the total present value of those costs, discounted at 7%, as of the day she enters college. Then find the compounded value of her initial $7,000 on that same day. The difference between the PV of costs and the amount that would be in the savings account must be made up by the father's deposits, so find the six equal payments that will compound to the required amount.]
Suppose you sell a fixed asset for $125,000 when it's book value is $155,000. If your company's marginal tax rate is 39%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
What is the current interest rate? Should the Treasurer buy or sell a futures contract?
Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $70,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next yea..
According to the put-call parity, the following condition must be met for the call price to be equal to the put price, when all the option factors are the same:
Define, give an example, and explain the appropriate treatment in decision making
Your firm has an average collection period of 22 days. Current practice is to factor all receivables immediately at a discount of 1.2 percent. What is the effective cost of borrowing in this case? (Do not round intermediate calculations. Enter your a..
Your startup needs a $10,000 loan for the next 25 days. It is trying to decide which of three alternatives to use:
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A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: If the required return is 15 percent, what is the IRR for this project?
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Taft Manufacturing is currently a levered firm with 15M shares outstanding priced at $30.00 per share and 350K bonds outstanding priced at $1,000 per bond. What is the new price per share immediately following this announcement, but before the shares..
Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. At what level of pretax cost ..
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