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1) Your spouse needs a car and you believe you can afford no more than $350 a month for a 5-year car loan. If the interest rate on this loan is 5% percent, what is the maximum you can afford to borrow to purchase this car?
2) our employer contributes $100 a week to your retirement plan. Assume that you work for this employer for another 15 years and the applicable discount rate is 7.25%. Given these assumptions, what is this employee benefit worth to you today?
3) You anticipate saving $1,800 a year for each of the next 25 years and anticipate earning 7% interest per year. Assuming annual compounding, how much do you expect to have in your account after 25 years?
4) You are borrowing $19,500 to buy a car. The terms of the loan call for monthly payments for 5 years at 6% percent interest. What is the amount of each monthly payment?
If you are an investor with a 33% tax rate on interest income but a 0% tax rate on capital gains, which bond would you prefer to own? Briefly explain.
Barton Industries expects next year's annual dividend, D1, to be $2.10 and it expects dividends to grow at a constant rate g = 5%. The firm's current common stock price, P0, is $22.40. If it needs to issue new common stock, the firm will encounter a ..
Suppose you have $50,000 to invest today. If you can earn a 12 percent return and no additional annual savings, how much will you have in 20 years?
Franco Modigliani and Metron Miller argued that with perfect capital markets the total value of a firm should not depend on its capital structure. It is inappropriate to discount the cash flows of leveraged equity at the same discount rate that we us..
After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only person voting for you. Schenkel has 385,000 shares outsta..
Assume you have just been hired as a financial analyst by Tennessee Sunshine Inc., a mid-sized Tennessee company that specializes in creating exotic sauces from imported fruits and vegetables. Why might stockholders be indifferent to whether or not a..
The extended version of the percentage of sales method:
Central Systems, Inc. desires a weighted average cost of capital of 8 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 11 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted aver..
An analyst has modeled XYZ stock using the Fama & French three factor model (FF3FM). Over the past few years the risk premium on SMB was 2.25% and the risk premium on HML was 2.95%. Regression analysis shows that XYZ’s beta coefficient on SMB is 2.5 ..
What is insolvency risk? How can liquidity risk and credit risk cause insolvency? What actions can a financial institution take to best protect itself against insolvency?
A project that provides annual cash flows of $16,600 for eight years costs $72,000 today. What is the NPV for the project if the required return is 7 percent? What is the NPV for the project if the required return is 19 percent? At what discount rate..
What is the optimal amount of each special ingredient for each drink and what is the optimal cost of the special ingredients in total?
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