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You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an award to cover the following: (a) The present value of two years’ back pay. The plaintiff’s annual salary for the last two years would have been $46,000 and $49,000, respectively. (b) The present value of five years’ future salary. You assume the salary will be $55,000 per year. (c) $155,000 for pain and suffering. (d) $25,000 for court costs. Assume the salary payments are equal amounts paid at the end of each month. Requirement 1: If the interest rate you choose is an EAR of 10 percent, what is the size of the settlement? (Enter youranswer as directed, but do not use rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Arter Corporation is in the process of preparing its annual budget. The following beginning and ending inventory levels are planned for the year. How much of the raw material should the company purchase during the year? Assume that company plans to s..
One defect of the IRR method vs. the NPV is that the IRR does not take account of cash flows over a project’s full life. One defect of the IRR method vs. the NPV is that the IRR does not take account of the time value of money. One defect of the IRR ..
Wheeler Corporation had retained earnings as of 12/31/10 of $15 million. During 2011, Wheeler's net income was $7 million. The retained earnings balance at the end of 2011 was equal to $20 million.
Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of existing financial securities at a geometric rate, specifically from $6 to $12 to $24 to $48 to $96 to $192 over a six-year time pe..
Johnson Tire Distributors has an unlevered cost of capital of 10 percent, a tax rate of 33 percent, and expected earnings before interest and taxes of $1,900 in perpetuity. The company has $3,200 in bonds outstanding that have an 8 percent coupon and..
A portfolio is invested 26 percent in Stock G, 41 percent in Stock J, and 33 percent in Stock K. The expected returns on these stocks are 9 percent, 11.5 percent, and 16.9 percent, respectively. What is the portfolio’s expected return?
Interest Rate Parity The nominal yield on 6-month T-bills is 4%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 5%. In the spot exchange market, 1 yen equals $0.011. If interest rate parity holds, what is the 6-month..
Your Christmas ski vacation was great, but it unfortunately ran a bit over budget. All is not lost: You just received an offer in the mail to transfer your $13,000 balance from your current credit card, which charges an annual rate of 20.8 percent, t..
You own a security that provides an annual dividend of $170 forever. The security’s annual return is 7%. What is the present value of this security? Round your answer to the nearest cent
Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 24 percent for the next three years, with the growth rate falling off to a constant 5 percent thereafter. If the required return is 12 percent, and the company just paid a di..
Hopefully, this will all help us to learn together and as our week progresses. Please let me know if it does. Briefly explain what you understand by the accruals concept. Briefly describe the difference between a statement of cash flows and a cash fl..
A stock has an expected return of 12.15 percent, its beta is 1.31, and the expected return on the market is 10.2 percent. What must the risk-free rate be?
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