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Mike wants to buy a new car and pay it off in a decent amount of time. He is willing to initially put a down payment of $10,000 today. The car salesman says that he can give Mike a loan for the rest of the car for $250 a month for the first 6 months at an interest rate of 8%. The following 10 months will have an interest rate starting at 10% and will increase at 2% for every month after. What is the value today of the total sum that Mike will end up paying with this loan plan?
A proposed $2.5 million investment at a 70 MGY (million gallons per year) facility will save the facility $1.1 million/ year in energy costs. The equipment needs maintenance every 3 years (year 3, 6, 9), costing $300,000 and the equipment has a usefu..
Two years ago Abilia purchased a $13,000 car; she paid $2,500 down and borrowed the rest. She took a fixed rate 60-month instalment loan at a stated rate of 7.0% per year. Interest rates have fallen during the last two years and she can refinance her..
Presto Cleaners recently liquidated its retail dry cleaning unit. That unit represented 35 percent of the firm's overall market value. Prior to the liquidation, the firm's stock was selling for $28 a share and there were 7,000 shares outstanding. The..
Cheesburger and Taco Company purchases 14,519 boxes of cheese each year. It costs $26 to place and ship each order and $7.89 per year for each box held as inventory. The company is using Economic Order Quantity model in placing the orders. How many o..
Stock XYZ: earning at time 0 E0 = $2.50, b = 40%, ROE = 13%, risk-free rate is 3%, expected return on market portfolio is 9%, the beta of stock XYZ is 1.5, and CAPM is valid. (1) What’s the required rate of return k based on CAPM? (2) What’s D1 of st..
Smith buys a 182-day US T-Bill at a price which corresponds to a quoted annual rate of 182-day T-Bills of 10%. 91 days later smith sells the T-Bill at which time the prevailing quoted annual discount rate of 91-day T-Bills is also 10%. Find th..
An investor buys a $1,000, 20 year 7 percent (interest paid semi annually) bond at par. After five years have passed, interest rates are 10 percent. The bondholder holds the bond until maturity how much did the investor lose on the purchase of the bo..
A firm has a market value equal to its book value. Currently, the firm has excess cash of $600 and other assets of $5,400. Equity is worth $6,000. The firm has 500 shares of stock outstanding and net income of $1,035. What will the new earnings per s..
Fuentes Company operates a large discount store and uses the retail method to estimate the cost of ending inventory. Management suspects that in recent weeks there have been unusually heavy losses from shoplifting or employee pilfer- age. Using the r..
futures contracts have more liquidity risk than forward contracts. futures contracts are more standardized than forward contracts. forward contracts have less credit risk for investors as compared to futures contracts.
An investment of $83 generates after-tax cash flows of $44.00 in Year 1, $72.00 in Year 2, and $127.00 in Year 3. The required rate of return is 20 percent. The net present value is what?
Gateway Communications is considering a project with an initial fixed asset cost of $2.46 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment is scrapped. ..
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