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Angela is offered to buy a financial security that guarantees to pay $30 every 3 years. The annual interest rate is 9%. Calculate and explain in words all calculations for the following: (a) How much would Angela pay for it today if the first payment will be received today? There will be a total of 20 payments. (b)How much would Angela pay for it today if the first payment will be received in 3 years? Again, there will be a total of 20 payments. (c)How much would Angela pay for it today if every other payment time the payments will be twice as large? I.e., $30, $60, $30, $60, and so on. The first payment will be received today, and there will be a total of 20 payments, explain in words along with the calcuations.
The Social Security Act, adopting in 1935, called for workers to make payroll tax payments, which were then pooled to pay retirement benefits to primary workers. Survivor benefits (paid to spouses and dependents of the primary worker) and disability ..
Your company is considering a new project that will require $1,066,000 of new equipment at the start of the project. The equipment will have a depreciable life of 10 years and will be depreciated to a book value of $156,000 using straight-line deprec..
A firm has a market value equal to its book value. Currently, the firm has excess cash of $2,000 and other assets of $4,800. Equity is worth $6,800. The firm has 850 shares of stock outstanding and net income of $1,050. The firm has decided to spend ..
Sentry Manufacturing paid a dividend yesterday of$5 per share (DO = $4). The dividend is expected to grow at a constant rate of 8% per year. The price of Sentry Manufacturing's stock today is $29 per share. Sentry Manufacturing’s marginal tax rate is..
What is the risk adjusted discount rate of a stock if the market return is 15%, the risk free rate is 7% and the stock's beta is 1.3? (This rate will be used to adjust the following project for risk) The initial investment is $150,000. Find the NPV: ..
Hathaway, Inc., a resort company, is refurbishing one of its hotels at a cost of $7,424,321. Management expects that this will lead to additional cash flows of $1,768,100 for the next six years. What is the IRR of this project? If the appropriate cos..
Pen Corporation purchased 80 percent of the stock of Sut Company at book value. - Prepare a consolidated balance sheet for Pen Corporation and Subsidiary at December 31, 2011.
A Treasury bond that matures in 10 years has a yield of 6%. A10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?
A borrower is considering a 1-year adjustable rate mortgage of $250,000 that starts at 2.5%, 30 year amortization. The margin is 2.25%. The annual change caps are 2% per year. The current index is 1.25%. The life cap is 6% over the start rate. What i..
For a company whose target capital structure calls for 50% debt and 50% common equity, which of the following statements is CORRECT? The interest rate used to calculate the WACC is the average after-tax cost of all the company’s outstanding debt as s..
Given a world with corporate taxes, rc , a personal tax rate paid on bonds, TpB , and a personal tax rate on income from equity, T ps, what would be the effect of a decrease in the corporate tax rate on the aggregate amount of debt in the economy.
A large retailer obtains merchandise under the credit terms of 1/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's e..
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