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Time value of money and the lottery. A friend of yours by the name of Pam has asked you for financial advice. She recently won a state lottery and was asked by the lottery officials to choose between the following payout options:
Option 1 - Receive a lump sum payment today of $61 million OR
Option 2 - Receive 30 end-of-year payments of $5.5 million each.
Would your answer to question 1 change if Sam expects a 9% return on his investments instead of 7%? Why or why not?
Suppose Alpha Industries and Omega Technology has identical assets that generate identical cash flows. Alpha Industries is an all-equity firm, with 10 million shares outstanding that trade for a price of $22 per share. According to MM Proposition I, ..
Soaring Eagles Corp. has total current assets of $11,870,000, current liabilities of $5,414,000 and a quick ratio of 0.87. What is its level of inventory?
Assume that Wal-Mart Stores, Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfa..
Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate and semi annual interest payments. Two years after the bonds were issued the going rate of interest on bonds such as these fell to 6%...
Compute the Net Present Value, Payback Period and the Internal Rates of Return for each alternative - on the basis of your analysis , which of the alternatives would you recommend?
BSW Corporation has a bond issue outstanding with an annual coupon rate of 5.8 percent paid quarterly and four years remaining until maturity. The par value of the bond is $1,000. Determine the fair present value of the bond if market conditions just..
You are considering an investment that costs $152,000 and has projected cash flows of $71,800, $86,900, and -$11,200 for years 1 to 3, respectively. If the required rate of return is 15.5 percent, should you accept the investment based solely on the ..
A company using activity based pricing marks up the direct cost of goods by 0.25 plus charges customers for indirect costs based on the activities utilized by the customer. What will the customer be charged?
Robotic Atlanta Inc. just paid a dividend of $4.00 per share (that is, D0 = 4.00). The dividends of Robotic Atlanta are expected to grow at a rate of 20 percent next year (that is, g1 = .20) and at a rate of 10 percent the following year (that is, g2..
Calculating Future Values [LO1] For each of the following, compute the future value:
You would like to have $47,436 for the down payment on a house you plan to buy five years after you graduate. If your investments earn 4.9% APR compounded monthly, how much do you have to invest each month, starting next month, to meet your investmen..
Bright Sun, Inc. sold an issue of 30-year $1,000 par value bonds to the public. The bonds had a 12.68 percent coupon rate and paid interest annually. It is now 14 years later. The current market rate of interest on the Bright Sun bonds is 11.60 perce..
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