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A family member passes away and leaves you an inheritance. The terms of the will specify that you may choose between annual payments of $50,000 at the end of each of 5 years, or a lump sum payment of $200,000 now. Seeing this as an opportunity to start saving for the future, you plan to invest the full amount of the inheritance in a mutual fund that earns 10% annually.
a. On purely financial grounds, which option should you choose and why?
b. What annual payment amount would make you indifferent between the $200,000 lump sum now option and the annual payments at the end of each of 5 years?
An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market v..
Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $6.3 million. The project will come to an end in 6 years., when the trap becomes technologically obsolete. The firm’s tax bracket is 35%, ..
An annuity pays 10,000 every year for 30 years. Find the accumulated value of this annuity 3 years after the last payment. Assume that the effective annual interest rate is 10%. An annuity pays 5,000 every year for 25 years. Find the present value of..
Process costing Problem Spectre Chemicals produces Zaloff in a two department process. Information on the two departments for March and April, 2011 are as follows: March 2011: Compute the Equivalent Units of Production, Material costs, and Conversion..
Dustin is considering an investment that will pay $3200 a year for 8 years, starting 1 year from today (which is normal). How much should Dustin pay for this investment today if he wishes to earn a 6 percent annual rate of return?
A child is born this year. On its first birthday [after 1 year], the parents decide to deposit an equal annual contribution to the college fund that will earn 8%, compounded annually. How much should they deposit at the end of each year so that it wi..
The net profit to a holder of a call option, with a strike price of $1.540/British pound, premium that he paid of $.010 and spot rate of $1.510/ British pound is? The AUS$ spot rate is US$.8203/AUS$. The 9month forward rate is US$.8460/AUS$. What is ..
If the yield on 10-year U.S. Treasury bonds is 12 percent, what is the maturity risk premium between a 10-year bond and a 1-year bond?
Choose a large, global company and explore their website. Do you find multiple versions of the company's site for different countries?
Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $130,000 if credit is extended to these new customers. Compute the incremental income after taxes. What will John..
You are given the following information concerning three portfolios, the market porfolio, and the risk-free asset: Portfolio X 12% Rp 29% Op 1.25 Bp Portfolio Y 11% Rp 24% Op 1.10% Bp Portfolio Z 8% Op 14% Op .75 Bp Market 10 Rp 19 Op 1.00 Bp Risk-fr..
Your firm needs a computerized machine tool lathe which costs $55,000 and requires $12,500 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. Calculate the depreciation tax shield for this project in ye..
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