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Saving for College
John Smith's son, Richard, is planning on attending a private college when he graduates from high school 5 years from now (2021). The annual tuition at the school is growing at a 6 percent rate and is expected to do so for the foreseeable future (including while Richard is in college). The current tuition rate is $15,000 annually and Richard must pay tuition at the beginning of each year for the 4 years he plans on attending. Mr. Smith would like to invest money over the next 5 years for Richard’s tuition (he will stop making deposits the year he begins college). How much must Mr. Smith deposit annually (beginning at the end of this year) in order to ensure that Richard has enough funds to attend the college if he can earn 12% on his investments?
Now assume that John is going to continue making payments AFTER Richard starts college. In other words, John will make 8 total payments with the last payment corresponding to Richard’s last tuition payment. This will leave $0 in the investment account. In this case, how much must John deposit annually in order to ensure that Richard has enough Funds to attend college. Assume the same investment rate as above.
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.79 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,110,000 in annual sale..
A 1,000 par value 7% annual coupon bond with 10 years to maturity is currently selling for 700. Compute the yield to maturity.
Lawyers are changing their pay structures. It used to be that they would bill hourly (top dollar for top lawyers, less experienced helpers had cheaper rates). Now they’re beginning to price like consultants—per project. What advice would you give a l..
Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out i..
Your financial planner offers you two different investment plans. Plan X is a $17,000 annual perpetuity. Plan Y is a 17-year, $24,000 annual annuity. Both plans will make their first payment one year from today. At what discount rate would you be ind..
A manufacturing facility at a cost of $80MM. is looking for a smart investment decision to expand the company. Analysis has indicated there would be $16,000,000 in Operating cash inflows (savings) each year for the first 5 years. Preferred stock – Fi..
Which of the following scenarios is an example of weak internal control? The mailroom clerk authorizes credit memos The accounts receivable clerk prepares customer statements every month The warehouse clerk obtains a signature before releasing goods ..
A project has a net present value of zero. Which one of the following best describes this project?
Tanghshan Mining has 100,000 shares outstanding and just declared a 3 for 2 stock split. Before the announcement, the firm's shares were trading at $50.00 per share. After the stock divided, the firm's shares should trade at ________ per share.
Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $120,000 and sell its old low-pressure glueball, which is fully depreciated, for $20,000. What is the equivalent annual savings from the purchase..
The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to share guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $650 for 5 years and #325 for the..
Which one of the following is advised when evaluating a capital project in a foreign country if you are concerned about political risk?
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