Solutions to Chapter 12 The Cost of Capital 1. The yield to maturity for the bonds (since maturity is now 19 years) is the interest rate (r) that is the solution to the following equation: [$80 annuity factor(r‚ 19 years)] + [$1‚000/(1 + r)19] = $1‚050 Using a financial calculator‚ enter: n = 19‚ FV = 1000‚ PV = (-)1050‚ PMT = 90‚ and then compute i = 7.50% Therefore‚ the after-tax cost of debt is: 7.50% (1 – 0.35) = 4.88% 2. r = DIV/P0 = $4/$40 = 0.10 = 10% 3. = [0.3 7.50% (1
Premium Stock Finance Net present value
after you retire). You know that you will be able to earn 11% per year during the 30-year retirement period. a. How large a fund will you need when you retire in 20 years to provide the 30-year‚ $20‚000 retirement annuity? n= 30 r= 11.00% PVIFA= 30 periods‚ 11% Rate = 8.693793 Annuity= 20‚000 / Present value = $173‚876 = 20000 X 8.693793 Answer= $ 173‚876 Retirement money required b. How much will you need today as a single amount to provide the fund calculated in part A if you earn only
Premium Time value of money Interest Stock
the coupon interest rate is 8%‚ and the yield to maturity is 9%. What is the bond’s current market price? PV factor of sum = (1+i)^-n = (1+9%)^-10 =1.09^-10 = 0.4224 PV factor of annuity = 1 - (1+i)^-n / i = 1 - (1+9%)^-10 / 9% = 1 - 0.4224 / 9% = 0.5775 / 9% = 6.417 = PV factor of Sum * Par Value + PV factor of annuity * coupon payment = 0.4224 * 1‚000 + 6.417 * 80 = 422.4 + 513.3 = 935.76 2. An investor has two bonds in his portfolio that have a face value of $1‚000 and pay a 10% annual coupon
Premium Bond Bonds
------------------------------------------------- ACC/421 Sample Final Examination This Sample Examination represents the Final Examination that students complete in Week Five. As in the following Sample Examination‚ the Final Examination includes questions that assess the course objectives. Although the Sample Examination includes one question per objective‚ the Final Examination includes three questions per course objective. Refer to the questions in the following Sample Examination
Premium Balance sheet Financial statements Asset
Models for Life Contingencies SPRING 2014 Important Exam Information: Exam Date and Time A read-through time of 15 minutes will be given prior to the start of the exam. Exam Registration Candidates may register online or with an application. Introductory Study Note The Introductory Study Note has a complete listing of all readings as well as errata and other very important information. Past Exams There are no past exams for the new version of this examination. Past exams
Premium Answer Question Assessment
example‚ the cost of purchasing the oxen divided by their expected life yielded the yearly depreciation amount applied for the oxen. Due to the death of Sihathor’s worker‚ he granted the worker’s widow an annuity of one sack of corn per lunar cycle for the rest of her life. The present value of this annuity was 95 sacks of corn‚ which
Premium Generally Accepted Accounting Principles Balance sheet Asset
must you wait until your account has grown to $3‚600? 5. You need $75‚000 in 10 years. If you can earn 0.55 percent per month‚ how much will you have to deposit today? 6. If you put up $20‚000 today in exchange for a 8.5 percent‚ 12-year annuity‚ what will the annual cash flow be? 7. Bath ’s Bank offers you a $50‚000‚ seven-year term loan at 8 percent annual interest. What will your annual loan payment be? 8. Curly ’s Life Insurance Co. is trying to sell you an investment policy
Premium Net present value Cash flow Time value of money
of the money to invest into his company thus making it a business expense which lowers your overall tax liability. If John has the option of collecting his fee on an annuity basis along with his client he could reduce his current income and his tax liability. He would also create a guaranteed income for his company for the annuity period creating a more desirable company as a whole thus lowing future debt
Premium Taxation in the United States
PRINCIPLES OF MANAGERIAL FINANCE TWELFTH EDITION LAWRENCE J. GITMAN SAN DIEGO STATE UNIVERSITY PEARSON Prentice Hall Boston San Francisco New York London Toronto Sydney Tokyo Singapore Madrid Mexico City Munich Paris Cape Town Hong Kong Montreal Contents Preface xxxi Revised Content xxxiii Supplements to the Twelfth Edition Acknowledgments To the Student xxxvii xl xliii Part One Introduction to Managerial Finance 1 Chapter 1 The Role and Environment of Managerial Finance page 2
Premium Corporate finance Dividend Finance
www.virtualinspire.com ACC501 Current 11 Solved Finalterm Papers and Important MCQS Solved… By EXAMINATION Question No: 1 ( Marks: 1 ) - Please choose one The accounting definition of income is: ►Income = Current Assets -Current Liabilities ►Income = Fixed Assets - Current Assets ►Income = Revenues - Current Liabilities ►Income = Revenues - Expenses pg 17 Question No: 2 ( Marks: 1 ) - Please choose one What would be the capital spending for an organization who has purchased fixed assets
Premium Net present value Cash flow Internal rate of return