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Time value of money and the lottery. A friend of yours by the name of Pam has asked you for financial advice. She recently won a state lottery and was asked by the lottery officials to choose between the following payout options:
Option 1 - Receive a lump sum payment today of $61 million OR
Option 2 - Receive 30 end-of-year payments of $5.5 million each.
Would your answer to question 1 change if Sam expects a 9% return on his investments instead of 7%? Why or why not?
Assume you have recently graduated with your business degree, and landed a new position at a company you had been researching during your senior year in college. You have been offered a lump-sum, sign-on bonus of $5,000. Regardless of your decision t..
Calculate the net present value of a project with a net investment of $20,000 for equipment and an additional net working capital investment of $5,000 at time 0. The project is expected to generate net cash flows of $7,00 per year over a 10 year esti..
Nugent Communication Corp. is investing $9,145,700 in new technologies. The company’s management expects significant benefits in the first three years after installation (as can be seen by the following cash flows), and smaller constant benefits in e..
Barnett Corporation sold a $580,000, 7 percent bond issue on January 1, 2014. The bonds pay interest each June 30 and December 31 and mature 10 years from January 1, 2014. For comparative study and analysis, assume three separate cases. Use straight-..
Find the present value of the following ordinary annuities: PV of $300 each six months for five years at a simple rate of 12 percent, compounded semi annually
You receive $10,000 that obligates you to provide an event that will cost $11,000. Assuming the event is held one year from today, what annual discount rate will make the project have a net present value greater than zero? 8, 9, 10, or 11%? The answe..
What was the premium on the Dec. BABA 118 put? Was this option in or out of the money? What was the intrinsic value of this put? What is the time value?
You buy a bond with a $1,000 par value today for a price of $910. The bond has 7 years to maturity and makes annual coupon payments of $82 per year. You hold the bond to maturity, but you do not reinvest any of your coupons. What was your effective E..
Scott Investors, Inc., is considering the purchase of a $371,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method. The market value of the computer will be $71,000 in ..
Suppose the real rate is 4.05 percent and the inflation rate is 2.8 percent. What rate would you expect to see on a Treasury bill?
Rivashes Fashion recently reported $10,750 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. ..
Wyatt oil is considering drilling a new oil well that is initially expected to produce oil at a rate of 10 million barrels per year. Wyatt has a long-term contract that allows them to sell the oil at a profit of $2.50 per barrel. The cost of drilling..
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