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Bob and Carol are planning for the birth of their first child exactly four years from today. They are now ready to start their savings plan for the big event. The current hospital cost for having a healthy baby at the local hospital is $6500 after all insurance payments. Pre-natal care for the immediate 12-month period prior to having the baby amounts to $2000 out-of-pocket costs. Carol's best friend is planning a baby shower, so only a crib, a baby carrier, and other miscellaneous items will be needed, which all cost $1,200 today. However, these items will be purchased and paid for the day of the child’s birth, and the items are expected to increase in costs by 10% each year over the next four years due to inflation. Bob and Carol now have $500 in cash that they plan to put in the bank in order to cover the all the new costs. Also, Uncle Ted has promised to contribute $1000 at the end of year two, as a present to Bob and Carol for baby expenses. Currently, Bob and Carol can earn 6% compounded annually on this money. In order to be able to pay cash for all these expenses on the day the baby is born, how much will Bob and Carol have to save, assuming the baby is born exactly four years from today Questions: 1.Draw the timeline that illustrates the timing of all the events of the situation described above. 2.How much will Bob and Carol need to have in the bank on the day the baby is born in order to achieve all their goals? 3. What amount needs to be saved at the end of each year in order for Bob and Carol to reach their financial goals?
Consider a firm that this year generated free cash flow of $150million. The firm's cash is considered to grow by 2% anually towards infinity. The WACC (discount rate) is 10%. Value the firm in the scenario above.
A manufacturing system costs $150,000. Its lifetime is 15 years and at that time its salvage value will be $25,000. Your Minimum Attractive Rate of Return is 18%. How much net income does the system need to provide in order for it to be an attractive..
Historical costs are all of the following except that they:
Cisco Systems has total assets of $2.549 billion, total debt of $1.377 billion, and net sales of $1.515 billion. Its net profit margin for the year is 16 percent, while the operating profit margin is 18 percent. What are Cisco’s net income, EBIT ROA,..
If a 6% annual coupon bond is currently traded at $1150, the YTM of the bond should be larger than 6%. If a bond with a discount rate of 10% is currently traded at $1050, the coupon rate should be smaller than 10%. If the YTM for a 9% annual bond is ..
you are a coffee anticipating the purchase of 82000 pounds of coffee in three months. you are concerned that the price
Explain how Ghanaian importer can protect its value against an appreciation of the US exporter currency. Show calculations to support your explanation
Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by three ..
Assuming Microsoft dividend grows by 3% every year for 10 years and the discount rate is 6%. What is the intrinsic price of Microsoft today and is it more or less than the market price?
DFB, Inc. expects earnings this year of $5.16 per share, and plans to pay a $3.30 dividend to shareholders. DFB will retain $1.86 per share of its earnings to reinvest in projects that have an expected return of 14.8% per year. What growth rate of ea..
A sandwich shop has been doing business for 10 years in Pinecrest. The shop currently operates out of a building that is paid for. The variable overhead expenses are 10% of sales each sandwich has a food cost of $1. Break even in dollars and units fo..
Why should a coupon paying bond be viewed as a portfolio of zero-coupon bonds? What path does a par bond’s flat price take between coupon payment dates if the discount rate is unchanged?
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