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It is now December 31, 2015 (t = 0), and a jury just found in favor of a woman who sued the city for injuries sustained in a January 2014 accident. She requested recovery of lost wages plus $400,000 for pain and suffering plus $80,000 for legal expenses. Her doctor testified that she has been unable to work since the accident and that she will not be able to work in the future. She is now 62, and the jury decided that she would have worked for another three years. She was scheduled to have earned $45,000 in 2014. (To simplify this problem, assume that the entire annual salary amount would have been received on December 31, 2014.) Her employer testified that she probably would have received raises of 3% per year. The actual payment for the jury award will be made on December 31, 2016. The judge stipulated that all dollar amounts are to be adjusted to a present value basis on December 31, 2016, using a 6% annual interest rate and using compound, not simple, interest. Furthermore, he stipulated that the pain and suffering and legal expenses should be based on a December, 31, 2015, date. How large a check must the city write on December 31, 2016? Do not round intermediate calculations
A company is using the internal rate of return (IRR) when evaluating projects. You have to find the IRR for the company's project. The initial outlay for the project is $450,000. The project will produce the following after-tax cash inflows:
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.6%. The correlation between th..
A stock has an expected return of 15 percent, its beta is 1.55, and the risk-free rate is 6.5 percent. What must the expected return on the market be?
A share of stock with a beta of .84 now sells for $59. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 3%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what must be investors’..
John is looking to value a particular stock that is expected to pay the dividend of $1.80 at the end of each year for at least the next few years.
Morales Publishing’s tax rate is 40%, its beta is 1.10, and it uses no debt. However, the CFO is considering moving to a capital structure with 30% debt and 70% equity. If the risk-free rate is 5.0% and the market risk premium is 6.0%, how much is th..
Which statement below best describes the rule to apply for Net Present Value (NPV)?
Find the value of the following cash flow stream in Year 4 if the appropriate discount rate is 9 percent.
Suppose you know that a company’s stock currently sells for $65.60 per share and the required return on the stock is 10 percent. You also know that the total return on the stock is evenly divided between capital gains yield and dividend yield.
A company is expected to have earnings of $1.21 per share in one year, $1.96 per share in two years, $2.28 per share in three years, and $2.88 in four years. The dividend payout ratio is also expected to remain at 40% over the next four years. The la..
The risk-free rate of return is 6%, the required rate of return on the market is 10%, and High-Flyer stock has a beta coefficient of 2.5. If the dividend per share expected during the coming year, D1, is $2.20 and g = 5%, at what price should a share..
What is the difference between the following four charitable trusts? Give 1 example for each. Charitable Remainder Unitrusts, Charitable Remainder Annuity Trusts, Charitable Lead Trusts, and Pooled Income Funds
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