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Your company has made regular payments to an employee pension plan in the past. Since the plan is now overfunded, future payments will be delayed. No payments are planned today, or at the end of years 1 through 3. A payment of $500,000 will be made at the end of years 4 through 8. A payment of $350,000 will be made at the end of year 10. Do the following and include an appropriate cash flow diagram for each part. Assume an annual interest rate of 5.2%.
a) Determine the present worth of the scheduled pension plan payments (at time t = 0 years).
b) Determine the future worth of the scheduled pension plan payments (at time t = 10 years). [Hint: You can save time by using the result from part a)].
c) Determine the equivalent uniform annual payment (for the 10 years) that has thesame (present or future) worth. [Hint: You can use the result from part a) or b) to find the annual annuity].
Assume an investor purchased six-month commercial paper with a face value of $1 million for $940,000.- What is the yield?
Collect annual data on 1-year T-security rate (nominal rate of interest). Using the inflation rate data in #1, compute the "real rate of interest" for each year. (Hint: Fisher equation)
Wyler Inc. has a beginning cash balance of $380 on March 1. The firm has projected sales of $550 in February, $700 in March, and $800 in April. The cost of goods sold is equal to 75 percent of sales. Goods are purchased one month prior to the month o..
Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $11 million in invested capital, has $3.3 million of EBIT, and is in the 40% federal-plus-state tax bracket. Calculate the retu..
Suppose Klausenheimer, Inc. is considering a new project. The project alone will cost $50,000,000 and is expected to generate after-tax cash flows of $5,000,000, $6,000,000 and 7,000,000 during the first three years. To account for the additional ris..
An unlevered firm has a value of $850 million. An otherwise identical but levered firm has $50 million in debt at a 7% interest rate. Its cost of debt is 7% and its unlevered cost of equity is 11%. After Year 1, free cash flows and tax savings are ex..
But now assume that the additional volume does not enable enough economies-of-scale to reduce the average cost per case as much as originally anticipated. Assume now that the average cost per case drops only to $95. What is the new required price?
Assume that your cousin holds just one stock, Eastman Chemical Bonding (ECB), which he thinks has very little risk. You agree that the stock is relatively safe, but you want to demonstrate that his risk would be even lower if he were more diversified..
Break-even analysis attempts to determine:
When it comes to estimate Beta, what compromises do we usually make? And in your opinion, which one (or several) of these compromises are mostly likely to affect the validity of beta estimates? Please provide your reasoning.
What strengths and weaknesses are you able to detect in Happy Merchants' performance?- Calculate ROE, ROA, Net interest margin, Earnings per share and Net noninterest margin.
An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value?
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