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Computation of NPV of lump sum future receipt and annuity receipts.
1. Kimberly has just won a $20 million lottery, which will pay her $1 million at the end of each year for 20 years. An investor has offered her $10 million for this annuity. She estimates that she can earn 10 percent interest, compounded annually, on any amounts she invests. She asks your advice on whether to accept or reject the offer. What will you tell her? (Ignore Taxes)
2. Mr. Handyman has been awarded a bonus for his outstanding work. His employer offers him a choice of a lump? Sum of $5,000 today, or an annuity of $1,250 a year for the next five years. Which option should Mr. Handyman choose if his opportunity cost is 9 percent?
3. In their meeting with their advisor, Mr. & Mrs. Smith concluded that they would need $40,000 per year during their retirement years in order to live comfortably. They will retire 10 years from now and expect a 20? Year retirement period. How much should Mr. & Mrs. Smith deposit now in a bank account paying 9 percent to reach financial happiness during retirement?
Provide suitable example of three companies with workings out of how third company has greater required rate of return even if standard deviation of returns of third company share is lower.
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Time Value of Money project
Before-tax yield to maturity on company’s bonds is 9%. What is the company’s weighted average cost of capital (WACC)?
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On April 14, 1994, Bill Shaw, retired policeman, offered to sell Thurgood his 1965 Mustang convertible for= $1,000.
Determine the internal rate of return compounded annually on this investment?
Find out the present value of given each petuities. Each petuity with $1000 annual payment discounted.
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Must you project that firm gross profit will rise next year? If you project that gross profit will rise is the increase a result of volume growth price growth or both?
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