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Investor buys a stock today assuming to resell it one year from now for $70. Dividend expected to be paid in one year is $10. If required rate of return is 25%, how much the investor is ready to pay for the stock today? That is, what is the PV of future cash flows generated by the investor?
Nachman Industries just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What..
Rip Van Winkle made a $1,000 deposit in a bank that offered to pay 9% interest compounded annually as long as he left it there. He then went into a deep sleep. When he woke up, his balance was $1,411.58. How many years did he sleep?
Suppose that you buy an interest rate cap on three month LIBOR with a two year maturity and simultaneously sell a floor on three month LIBOR with a two year maturity. Ignore the premiums. Draw a profit diagram that indicates when you will gain and lo..
Consider a $1,000 par value bond with a 7% annual coupon. The bond pays interest annually. There are 20 years remaining until maturity. You have expectations that in 5 years the YTM on a 15-year bond with similar risk will be 7.5%. What is the expect..
Riverton Mining plans to purchase or lease $220,000 worth of excavation equipment. If purchased, the equipment will be depreciated on a straight-line basis over five years, after which it will be worthless. If leased, the annual lease payments will b..
If an individual employee, age 25, earning $45,000 per year has an opportunity to participate in an employer sponsored 401(k) tax sheltered retirement account with the employer matching the first $1,200 of annual contributions made by the employee,
You have recently accepted a position with Vitex, Inc., the manufacturer of a popular consumer product. During your first week on the job, the vice president has been favorably impressed with your work. How much actual variable manufacturing overhead..
A project is expected to create operating cash flows of $32,000 a year for three years. The initial cost of the fixed assets is $66,000. These assets will be worthless at the end of the project. An additional $3,500 of net working capital will be req..
Grant purchased one call on XYZ stock at an exercise price of $25. The market price of XYZ stock when Grant purchased the call was $24 a share. XYZ is currently priced at $30 a share. Grant paid $120 to buy the call. How much profit will Grant make i..
Magnus Credit Corp. wants to earn an effective annual return on its consumer loans of 17.75 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potential borrowers?
A U.S. Treasury bill with 64 days to maturity is quoted at a discount yield of 1.75 percent. What is the bond equivalent yield?
Sole proprietorships have all of the following advantages except easy to set up. single taxation of income. Limited liability. Owner ship and control are not separated.
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