Calculate the amount of interest expense

Assignment Help Financial Management

Reference no: EM131999619

1. John Adams borrowed $25,000 at a 10% annual interest rate for a vehicle purchase from First State Bank. This loan is to be repaid over a three-year time-frame. The loan will be amortized in three equal, end-of-year payments.

A. Calculate the annual, end-of-year loan payment that John will make each year.

B. Calculate the amount of “Interest Expense” that will be paid in the first year that this loan is outstanding.

2. Urban Utilities, Inc. has an outstanding common stock that is not growing. The firm has been paying an annual $4 dividend each year. No growth in this dividend payment is expected for the foreseeable future. Investors require an annual 8% rate of return on this stock, due to its risk level.

a. Given this information, calculate the market value per share of this firm’s outstanding common stock.

b. Now, assume that a large competitor enters the market, taking 20% of Urban Utilities’ market share. With this increase in risk, investors now require a 10% annual rate of return on Urban Utilities common stock. Given this information, calculate the market value per share of Urban Utilities’ common stock.

3. Milford Masonry, Inc. expects to pay a dividend per share of $2.50 next year on its common stock. The firm has enjoyed a 4% annual growth rate over the past decade.

a. If you can earn a 10% rate of return on other investments having similar risk, how much would you be willing to pay per share for Milford Masonry’s stock?

b. Now, assume that you can only earn 6% on similar-risk investments. How much would you now be willing to pay for Milford Masonry’s stock?

Reference no: EM131999619

Questions Cloud

Write an proposal to design of experiment approach : Write an proposal to design of experiment approach to email marketing. The response must be typed, single spaced, must be in times new roman font (size 12).

Elimination of the non-essential : The wisdom of life consists in the elimination of the non-essential." What does this mean, and does it relate to planning?

What are the ethical dilemma mne face : What are the Ethical Dilemma MNE face in the context of Human Right when dealing with (Treatment to employees)?

What concerns are involved when shutting down a project : What concerns are involved when shutting down a project early? Which ones are easier to address and which ones are more difficult?

Calculate the amount of interest expense : Calculate the amount of “Interest Expense” that will be paid in the first year that this loan is outstanding.

Case Finance analysis - Yale University Investments Office : Finance Assignment - Need given two cases Finance analysis. The requirement is writing just one page that diagnosis the case with clear idea

Define systems thinking and classify the tools and technique : It should contain an effective introduction, body and conclusion. The introduction should introduce the essay and include your argument.

Is the portfolio risky or less risky than the average : What can you say about a market risk of the portfolio above based on the beta you found - is the portfolio risky or less risky than the average?

How do compensation practices in europe differ from the us : How do compensation practices in Europe differ from the US? (wage and incentives, health insurance, and paid vacation or time off)

User Account

All Pages