Академический Документы
Профессиональный Документы
Культура Документы
$45,150
Question 2
Ella Funt would like to set up her retirement account that will begin in
40 years. To play it safe, she wants to assume that she will live forever
and she will withdraw $160,000 annually. Assuming her account will
earn 10% interest during the next 40 years and 5% interest afterwards
forever, how much will Ella need to save annually over the next 40
years to fund her retirement account?
$12,088
Question 3
Bob Katz is purchasing a new Honda Pilot for $32,000. He is financing
$28,000 with a six year, 4% loan with annual payments. Construct an
amortization schedule, in the 2nd year row, corresponding to his
second annual payment, what is the dollar amount of the principal
reduction?
$4,390
Question 4
Sally Mander is planning on retiring in 20 years and she believes that
she will live for 25 years after she retires. Sally would like to set up a
retirement plan that will pay her $90,000 annually for 25 years.
Assuming 9% interest over the next 20 years that she is working, and
6% interest after she retires, how much will Sally need to save annually
over the next 20 years?
$34,883
Question 5
Regarding compound interest, daily compounding of your savings
account will always be worth more compared to annual compounding.
True
QUIZ-Bond and Stock Valuation
Question 1
Builtrite bonds have the following: 4 1/4% coupon, 14 years until
maturity, $1000 par and are currently selling at $1032. If you
purchase this bond, what would be your AYTM?
3.9%
Question 2
Builtrite bonds have the following: 6 % coupon, 12 years until
maturity, $1000 par and are currently selling at $1064. If you want to
make an 6% return, what would you be willing to pay for the bond?
$1042
Question 3
Builtrite sold 10 year, $1000 par value, zero coupon bonds yielding 4%.
What did they sell for?
$676
Question 4
Builtrite preferred stock has a 5 1/2% coupon based on a par value of
$50 a share. Currently, investors require a 5% return. What is the
value of Builtrites preferred stock?
$55
Question 5
Given the following information, calculate the current value of the
stock: current dividend is $1.50, projected super normal growth for
three years at 20%, growth rate after year 3 should remain constant at
10% and you want to earn a 16% annual return. What should you pay
for the stock?
$35.26
$14.1
Question 3
Polly Khan is trying to calculate the risk-free rate given the following
information: The current market rate of interest is 8%. Investors
have been requiring a 10% annual return on Builtrites stock which has
a beta of 1.5. What is the current risk-free rate?
4%
Question 4
Builtrite has calculated the average cash flow to be $12,000 with a
standard deviation of $4,500. What is the probability of a cash flow
being greater than $9750? (Assume a normal distribution.)
19.15%
Question 5
The purpose of the CAPM is to try and equate a stock's required return
to its perceived level of risk.
True
QUIZ-Cost of Capital
Question 1
Builtrite Auto has preferred stock shares outstanding that pay an
annual dividend of $8 and are currently selling for $86 a share. What
is the after-tax cost of preferred stock if the flotation cost for new
shares is 5% and Builtrite is in the 34% marginal tax bracket?
9.79%
Question 2
Builtrite Furniture is considering sells bonds for a plant expansion.
Currently, Builtrite believes that it could sell 15 year maturity, $1000
par value, 5 3/4% coupon bonds after flotation costs for $985. If
Builtrite is in the 34% marginal tax bracket, what is the after-tax cost
for the bonds?
3.90%
Question 3
Builtrites common stock is currently selling for $56 a share and the
firm just paid an annual dividend of $3.20 per share. Management
believes that dividends and earnings should grow at 9% annually.
Based on this, and a marginal tax rate of 34%, what is the after-tax
cost of common stock (or after-tax cost of retained earnings)?
15.2%
Question 4
Builtrites common stock is currently selling for $48 a share and the
firm just paid an annual dividend of $2.30 per share. Management
believes that dividends and earnings should grow at 8% annually.
Since new stock would need to be sold to finance an expansion,
Builtrite expects flotation costs to be 5% of the expected selling price
of $48 a share. Based on this, and a marginal tax rate of 34%, what is
the after-tax cost of new common stock?
13.4%
Question 5
Common stock is called a hybrid security because it takes on the
attributes of both preferred stock and bonds.
False
QUIZ-Capital Budgeting
Question 1
QUESTIONS 1 3 GO WITH THE FOLLOWING PROBLEM:
Builtrite has estimated their cost of capital is 15% and they are
considering the purchase of a machine with the following capital
budget:
Initial Investment
$62,000
RATFCF Year 1
$22,000
RATFCF Year 2
$30,000
RATFCF Year 3
$38,000
What is the machines NPV?
Question 2
What is the Profitability Index (PI) of this machine?
Question 3
What is the Internal Rate of Return of this machine?
Question 4
QUESTIONS 4 5 GO WITH THE FOLLOWING INFORMATION:
Builtrite is considering purchasing a new machine that would cost
$50,000 and the machine would be depreciated (straight line) down to
$0 over its five year life. At the end of five years it is believed that the
machine could be sold for $8,000. The machine would increase EBDT
by $36,000 annually.
Builtrites marginal tax rate is 34%.