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Mary Chong, capital expenditure manager for PDA Manufacturing, knows that her company is facing a series of monthly expenses associated with installation and calibration of new production equipment. The company has $1 million in a bank account right now that it can draw on to meet these expenses. Funds in this account earn 6% interest annually, with monthly compounding. Ms Chong is preparing a budget that will require the company to make equal monthly deposits into their bank account, starting next month, to ensure that they can pay the repair costs they anticipate over the next 24 months (shown as follows). How much should the monthly bank deposit be? Months Repair Costs per Month 1–4 $100,000 5–12 $200,000 13–24 $500,000.
The contract size for platinum futures is 50 troy ounces. Suppose you need 500 troy ounces of platinum and the current futures price is $1,265 per ounce. How many contracts do you need to purchase? How much will you pay for your platinum? What is you..
XYZ has just sold a callable bond. The bond is a thirty year semi-annual bond with a coupon rate of 8%. Investors, however, can call the bond starting at the end of ten years. If the yield-to-call on this bond is 10% and the call requires XYZ to pay ..
Consider the following cash flow of company profits. A company earns $3600 in years 1, 2, & 3, from years 4 through 7 the profits increase by $500 annually. What is the present worth of this cash flow, if the interest rate is 9% and total years analy..
Arnold Ziffle established a trust fund that provides $75,000 in scholarships each year for worthy students. The trust fund earns a 5 percent rate of return. How much money did Ziffle contribute to the fund assuming that only the interest income is di..
Last month when IBM was selling for $86, Dan purchased a call option on IBM with an exercise price of $90 for $2 per option or $200 total. Yesterday, IBM closed at $95. Based on the minimum value of the contract, if Dan sells his call at yesterday's ..
Jacqueline Strauss, whose 25 is committed $3000 per year for her retirement fund and assumes shell retire at 65. How much will she have accumulated when she turned 65 if she invests in equities and earns 8% on average?
Corporations often use different costs of capital for different operating divisions. Using an example, calculate the weighted cost of capital (WACC). What are some potential issues in using varying techniques for cost of capital for different divisio..
Forral Company has never paid a dividend. But, the company plans to start paying dividends in two years – that is, at the end of Year 2. The first dividend is expected to be $2 per share. The second dividend, and every dividend thereafter is expected..
The Board of Directors and executive officers of a corporation have a fiduciary duty to safeguard the interests of their shareholders.
A bond sells for $941.15 and has a coupon rate of 7.80 percent. If the bond has 21 years until maturity, what is the yield to maturity of the bond? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. O..
Frank owns 100% of the stock of Sands, Inc. (a C corporation). In a tax year, Sands, Inc. has income before tax = $1,500,000. This is after Sands paid Frank a salary = $350,000. Sands, Inc. also paid dividends = $100,000. Sands is Frank's only sou..
The distribution of a firm's capital between debt and equity is its
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