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Fred Nickerson, gold digger, plans to build a mining operation on his farm. The initial investment will be $100,000 and each year Fred expects to pay $5,000 to maintain the equipment. He will pay his trusty employee Earl $20,000 at the end of the first year and increase Earl’s salary $3,000 each subsequent year. Fred expects to make $50,000 in gold sales the first year, and expects the price of gold to increase 8% every year after that. At the end of eight-year operation, Fred expects to be able to sell the aging mining equipment for $15,000. Perform calculations using a 9% interest rate.
What is the present value of Fred’s entire business venture, assuming his assumptions are correct? Present the formulas you use in functional notation.
Which among the following is a violation of weak form efficiency?
Which of the following statements concerning the “gross-up” rule is (are) correct? I Income taxes paid in the year of death are includible in the deceased’s gross estate. Gift taxes paid in the year of death are included in the deceased’s gross estat..
Codner Corporation stock currently sells for $82 per share. The market requires a 10.2 percent return on the firm’s stock. If the company maintains a constant 3.1 percent growth rate in dividends, what was the most recent dividend per share paid on t..
If the yield curve is downward sloping, which of the following statements is correct?
Despite group of companies is a rapidly growing chain of retail outlets offering brand name merchandise at discount price. A security analysts report issued by a national brokerage firm indicates that debt-yielding 10% compose 60% of the company’s ov..
Using Return Distributions Suppose the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 5.7 percent and the standard deviation was 18.3 percent. What is the probability that your return on t..
You are planning to purchase the stock of Ted's Sheds Inc. and you expect it to pay a dividend of $3 in 1 year, $4.25 in 2 years, and $6.00 in 3 years. You expect to sell the stock for $100 in 3 years. If your required return for purchasing the stock..
Six-month T-bills have a nominal rate of 4%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 2%. In the spot exchange market, 1 yen equals $0.0059. If interest rate parity holds, what is the 6-month forward exchange r..
What types of economic evaluations should Shadyville use to rationalize the decision between the implementation of Contingency Plan 1 and Contingency Plan 2? Why?
You are given the following information for Huntington Power Co. Assume the company’s tax rate is 38 percent. Debt: 7,000 6.8 percent coupon bonds outstanding, $1,000 par value, 30 years to maturity, selling for 104 percent of par; the bonds make sem..
XY Windows has a projected sales volume of $2864 for the second year of a proposed expansion project. Costs normally run 60% of sales, (or about $1718.40 in this case) the depreciation expense will be $90 and tax rate is 34%. What is operating cash f..
Several years ago, the hospital needed additional space and issued bonds to finance the purchase of a new building. Each bond has a face value of $15,000, a 3.8% coupon rate, and a maturity of 20 years. Interest is paid semiannually. The current mark..
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