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Ken and Maureen Blake have two children, with ages of 6 years and 5 months. Their younger child, Don, was born with a congenital heart defect that will require several major surgeries in the next few years to correct fully. Ken is employed as a salesperson for a major pharmaceutical firm, and Maureen is a stay-at-home mother. Kens employer offers employees a choice between two health benefit plans:
An indemnity plan that allows the Blakes to choose health services from a wide range of doctors and hospitals. The plan pays 80 percent of all medical costs, and the Blakes are responsible for the other 20 percent. There a deductible of $500 per person. Kens employer will pay 100 percent of the cost of this plan for Ken, but the Blakes will be responsible for paying $380 a month to cover Maureen and the children under this plan.
A group HMO. If the Blakes choose this plan, the company still pays 100 percent of the plans cost for Ken, but insurance for Maureen and the children will cost $295 a month. They’ll also have to make a $20 co-payment for any doctor’s office visits and prescription drugs. They will be restricted to using the HMOs doctors and hospital for medical services. Which plan would you recommend that the Blakes choose? Why? What other health coverage options should the Blakes consider?
Mom’s Cookies Inc. is considering the purchase of a new cookie oven. The original cost of the old oven was $30,000; it is now five years old, and it has a current market value of $13,333.33. The old oven is being depreciated over a 10-year life towar..
A firm is evaluating a project which will cost $10,269 today and provide cash flows in years 1, 2, and 3 of $7,560, $3,286, $3,268 and, respectively. The firm’s discount rate is 8%? (Assume CFs is received at the end of each year). What is the discou..
Use the present worth analysis method to determine which alternative (A or B) one should choose. Compute the net present worth of alternative A. Compute the net present worth of alternative B.
The expected return on HiLo stock is 14.60 percent while the expected return on the market is 13.4 percent. The beta of HiLo is 1.19. What is the risk-free rate of return?
Finance Corp has fixed costs of $7 million and profits of $4 million. What is its degree of operating leverage (DOL)?
An investor wants to form a two asset portfolio consisting of Treasury bills with a return of 2.5% and a risky portfolio with an expected return of 15.2% and a standard deviation of 16%. The investor wants the expected return of the two asset portfol..
Last year the Selling Corporation had earnings before interest and taxes (operating income) equal to $1 million. It paid $200,000 in dividends to its stockholders and $100,000 in interest to its creditors. During the year, the company also repaid a b..
Suppose Japanese yen money market annual rate is .60% and U.S. money market has an annual rate of 4.50%. The predictions on the spot rate in 6 months made by financial analysts X and Y are ¥116/$ and ¥114/$ respectively. If the spot rate today is ¥11..
Fantastic firm has a target capital structure that consists of 40% debt, 50% common stock and 10% preferred stock. The firm’s common stock recently issued a $4 dividend. Dividends are expected to grow at a constant rate of 8% forever. what is the fir..
What is meant by money market mutual funds “breaking the buck”? Why is the pricing of money market mutual funds important?
Large banks often borrow heavily in the federal funds market and maintain small investment portfolios relative to their asset size. Are these offsetting risk positions? Why do large banks organize themselves this way?
Companies raise long-term funds or capital for new projects through which of the following markets? The federal reserve is the governmental organization responsible for______. An increase in the value of the dollar relative to all foreign currencies ..
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