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You are serving on a jury. A plaintiff is suing the city for injuries sustained after falling down an uncovered manhole. In the trial, doctors testified that it will be 5 years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff, and has decided to grant the plaintiff an award to cover the following items:
?a. ?Recovery of 2 years of back-pay ($34,000 for two years ago, and $36,000 for last year, which ends today). Assume that it is December 31 and that all salary is received at year end. This recovery should include the time value of money.
?b. ?The present value of 5 years of future salary. Assume that the plaintiff’s salary would increase at a rate of 3 percent per year.
?c. ?$100,000 for pain and suffering.
?d. ?$20,000 for court costs.
?Assume an interest rate of 7 percent. What should be the size of the settlement?
Collecting samples is hampered by great distances between subsidiaries. Each department in a company should have an equal voice.
Your current facility meets the relevant NFPA codes, and your employer pays $100,000/year in liability insurance on the facility. Upgrading the meet the facility to meet the insurance company’s guidelines would cost $80,000, but would lower your annu..
Dressler Technologies is considering a project with a 3-year life and an initial cost of $87,000. The discount rate for the project is 14.5 percent. The firm expects to sell 1,300 units on the last day of each year. What is the net present value of t..
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,060,000, and it would cost another $24,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold af..
Assume that the risk-free rate is 3.5% and the expected return on the market is 8%. What is the required rate of return on a stock with a beta of 1.2?
Why are leverage your business model (LBM) deals 'over-priced'; whereas reinvent your business model (RBM) deals 'underpriced'?
Five years ago, Cayman’s Crafters, Inc. issued new 25 year convertible bonds with a 4% coupon rate, compounded semi-annually. The bond has a par value of 10,000. The market’s required rate of return on similar securities at the time of issuance was 3..
Schwartz Brothers, Inc., is in the process of deciding whether or not to invest in a project of holiday gifts production and sales. Aaron Buffet is in charge of the feasibility study of the project.
Interest rates on 4-year Treasury securities are currently 6.6%, while 6-year Treasury securities yield 7.3%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate..
If she buys only security j, how many shares can she buy? If she buys only security k, how many can she buy? - What are the prices of the pure securities implicit in the payoff table?
The D.J. Masson Corporation needs to raise $500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo disco..
You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you need a 14% return to make this deal? a. First year $150,000 b. Second year $175,000 c. Third year $225,000 d. Forth year $275,0..
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