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You are 65 years old and are considering the purchase of a pension annuity that would provide annual income of 100000/a_65 starting immediately. Your alternative is to invest the $100,000 in a mutual fund earning a random return g (where E[g] = 9% annually and SD = 20%) and to withdraw c each year; this is called self annuitization. Assume that the force of mortality is constant at X = 3.67%. What is the probability you will run out of money while you are still alive?
a commodity linked bond is issued with an embedded call option. the current commodity price is 110 as is the exercise
Whole Foods’ current dividend per share is $1.07. You expect dividends to grow at 5% per year into perpetuity. Whole Foods’ beta is 0.85. The current risk free rate is 2.9%, and the expected return on the market portfolio is 7.4%. what is the intrins..
A firm has a debt-equity ratio of 0.45 and a dividend payout ratio of 30 percent. The ratio of total assets to sales is constant at 1.25.If the firm would like to have a sustainable growth with a value of 6 percent per year, what profit margin must t..
Now, assume you have the option of buying a different fitness center with the same average profits and interest rate as the one in Problem #8. You have negotiated the price of this firm down to $800,000. Would you be willing to purchase this one?
Some major companies live and die by EVA. For example, at General Electric, more capital is allotted only to divisions that pass the EVA threshold and divisions that regularly flunk are sold off. It’s a simple, but powerful, approach that looks at a ..
Hayes Enterprises began 2015 with a retained earnings balance of $928,000. During 2015, the firm earned $377,000 after taxes. From this amount, preferred stockholders were paid $47,000 in dividends. Prepare a statement of retained earnings for the ye..
FB, Inc. declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet AFB, Inc. stock declined by 3% the day of the announcement. DAS, Inc. declared a dividend of $2 per share, which was the same as the prior year, and i..
Puckett Products is planning for $4.7 million in capital expenditures next year. Puckett's target capital structure consists of 60% debt and 40% equity. If net income next year is $2.5 million and Puckett follows a residual distribution policy with a..
Geico is considering expanding an existing plant on a piece of land it already owns. The land was purchased 15 years ago for $325,000, and its current market appraisal is $820,000. A capital budgeting analysis shows that the plant expansion has a net..
Billy D's Basketball Camp is considering a project that will result in initial aftertax cash savings of $3.9 million at the end of the first year, and these savings will grow at a rate of 5 percent per year indefinitely. What is the discount rate tha..
Determine the Payback period, NPV and IRR for both project A and B (show work). Which Project would you select and why? Be specific. Project A will require an initial investment of $ 200,000 and Project B will require and initial investment of $ 325,..
What makes a good financial statement? What makes a poor financial statement? Why? Why is it important that companies have accurate financial statements?
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