Time Value of Money Problem:
You wish to retire in 30 years and you
wish to accumulate $1,000,000 for your use.
If you're starting today with $25,000, and you plan on putting money
away each month, how much must you invest each month when using an 8% rate of
compounding to obtain your goal.
Secondly, if you wish to draw funds from
this retirement account upon retirement, and the level of interest rate is 7%
at that time, how much will you be able to withdraw as an income each month
over a 25 year time span?
You're concerned with the sales level
over the next 12 months as the markets and overall economy have swung up and down over the last two years, and,
there is reason to believe (make a case for) both better and worse times over
the next 1 year.
Your analysts tell you that sales should
grow by 30% if the economy is strong. If
the economy holds steady, you'll see a 5% increase due to the general level of
inflation in the market place. And, if the
economy slides into recession, you can expect to see a 30% decline in sales
over the next year.
Last year sales were 10,000,000 and your
analysts tell you that there's a 60% probability that the market will stay 'as
is'; a 15% probability of a strong economy; a 25% probability of a
recession. What is the expected level of
sales in the next 12 months?
Your division is considering two
investment projects, each of which requires an up-front expenditure of
$15,000,000. You estimate that the
investments will produce the following net cash flows:
5,000,000 year 1
10,000,000 year 2
20,000,000 year 3
20,000,000 year 1
10,000,000 year 2
6,000,000 year 3
What are the two projects net present
values, assuming the cost of capital is 10%, 5%, 15% (compute for each).
Renfro Rentals has issued bonds that
have a 10% coupon rate, payable semi-annually.
The bonds mature in 8 years, have a face value of $1,000 and a yield to
maturity of 8.5%. What is the price of the
A 10 year, 12% semi-annual coupon bond
with a par value of $1,000 may be called in 4 years at a call price of
$1060. The bond sells for $1,100 (assume
the bond has just been issued).
a) What is the bond's yield to maturity
b) What is the bond's current yield
c) What is the bond's capital gain or
d) What is the bond's yield to call
Smith Manufacturing's stock currently
sells for $22 per share. The stock just
paid a dividend of $1.20 a share (i.e., D1 = $1.20). The dividend is expected to grow at a
constant rate of 10% a year. What stock
price is expected 1 year from now?
What is the required rate of return on
the company's stock?