Busi-320 corporate finance connect homework 4

Compute the cost of not taking the following cash discounts.

(a)

2/18, net 40. (Use 360 days in a year. Round your intermediate calculations and final answers to 2 decimal places . Omit the “%” sign in your response.)

  Cost of lost discount

 on futures contracts

$ [removed]  

(c-1)

After considering the hedging, what is the net cost to the firm of the increased interest expense of $72,000? (Omit the “$” sign in your response.)

  Net cost

$ [removed]  

(c-2)

What percent of this $72,000 cost did the treasurer effectively hedge away? (Round your answer to 2 decimal places. Omit the “%” sign in your response.)

  Percentage hedged away

[removed] %  

(d) 

Indicate whether there would be a profit or loss on the futures contracts if interest rates went down.

(a)

$8,100 in 14 years at 7 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]  

(b)

$16,800 in 9 years at 8 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]  

(c)

$26,500 in 20 years at 6 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]  

You will receive $6,800 three years from now. The discount rate is 10 percent.

(a)

What is the value of your investment two years from now? Multiply $6,800 × .909 (one year’s discount rate at 10 percent). (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Value of investment

$ [removed]  

(b)

What is the value of your investment one year from now? Multiply your answer to part a by .909 (one year’s discount rate at 10 percent). (Round “PV Factor” to 3 decimal places and final answer to 2 decimal places. Omit the “$” sign in your response.)

  Value of investment

$ [removed]  

(c)

What is the value of your investment today? Multiply your answer to part b by .909 (one year’s discount rate at 10 percent). (Round “PV Factor” to 3 decimal places and final answer to 2 decimal places. Omit the “$” sign in your response.)

  Value of investment

$ [removed]  

(d)

Calculate the present value by going to Appendix B (present value of $1) for n = 3 and i = 10%. Multiply this tabular value by $6,800 and compare your answer to the answer in part c. There may be a slight difference due to rounding. (Round “PV Factor” to 3 decimal places and final answer to 2 decimal places. Omit the “$” sign in your response.)

  Present value

$ [removed]  

If you invest $15,500 today, how much will you have:

Use Appendix A.

(a)

In 8 years at 7 percent? (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Future value

$ [removed]  

(b)

In 19 years at 10 percent? (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Future value

$ [removed]  

(c)

In 20 years at 12 percent? (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Future value

$ [removed]  

(d)

In 25 years at 12 percent (compounded semiannually)? (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Future value

$ [removed]  

Your uncle offers you the choice of $104,000 in 10 years or $32,000 today. Use Appendix B.

(a)

Calculate the present value of $104,000, if the money is discounted at 8 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]  

(b)

Which choice should you choose?

(c)

Calculate the present value, if you had to wait until 12 years to get the $104,000. (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]   

(d)

Now, which choice should you choose?

(a)

$12,250 in 6 years at 10 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]  

(b)

$16,000 in 14 years at 12 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]  

(c)

$6,000 each year for 13 years at 9 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]  

(d)

$42,000 each year for 25 years at 6 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed] 

If you invest $8,300 per period for the following number of periods, how much would you have:
Use Appendix C.

(a)

In 10 years at 8 percent? (Use the values provided in the table exactly as given (1, 2, or 3 decimal places). If you use another source for these compounding factors, round to three decimal places. Round your final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Future value

$ [removed]  

(b)

In 40 years at 9 percent? (Use the values provided in the table exactly as given (1, 2, or 3 decimal places). If you use another source for these compounding factors, round to three decimal places. Round your final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Future value

$ [removed]  

At a growth (interest) rate of 9 percent annually, how long will it take for a sum to double? To triple? UseAppendix A. (Select the year that is closest to the correct answer and round your answers to the nearest whole number.)

  Time taken to double

[removed]  years   

  Time taken to triple

[removed]  years   

Cousin Bertha invested $119,000 5 years ago at 8 percent, compounded quarterly. How much has she accumulated? Use Appendix A. (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Future value

$ [removed]   

Determine the amount of money in a savings account at the end of three years, given an initial deposit of $8,500 and an 12 percent annual interest rate when interest is compounded (a) annually, (b) semiannually, and (c) quarterly. Use Appendix A. (Round “FV Factor” to 3 decimal places and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

Future value

  (a) Annually

$ [removed]  

  (b) Semiannually

$ [removed]  

  (c) Quarterly

$ 

Annuity payments are assumed to come at the end of each payment period (termed an ordinary annuity). However, an exception occurs when the annuity payments come at the beginning of each period (termed an annuity due). To find the present value of an annuity due, subtract 1 from n and add 1 to the tabular value. To find the future value of an annuity, add 1 to n and subtract 1 from the tabular value. For example, to find the future value of a $100 payment at the beginning of each period for five periods at 10 percent, go to Appendix C for n = 6 and i = 10 percent. Look up the value of 7.716 and subtract 1 from it for an answer of 6.716 or $671.60 ($100 × 6.716). What is the future value of a 13-year annuity of $3,000 per period where payments come at the beginning of each period? The interest rate is 11 percent. Use Appendix C. (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Future value

$ [removed]   

Your grandfather has offered you a choice of one of the three following alternatives: $11,500 now; $5,700 a year for eight years; or $77,000 at the end of eight years. Use Appendix B and Appendix D.

(a-1)

Assuming you could earn 9 percent annually, compute the present value for the following amounts?(Round “PV Factor” to 3 decimal places and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

Present value

  $11,500

$ [removed]   

  $5,700

$ [removed]   

  $77,000

$ [removed]   

(a-2)

Which alternative should you choose?

(b-1)

If you could earn 15 percent annually, compute the present value for the following amounts? (Round “PV Factor” to 3 decimal places and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

Present value

  $11,500

$ [removed]   

  $5,700

$ [removed]   

  $77,000

$ [removed]   

(b-2)

Which alternative should you choose?

You need $25,956 at the end of ten years, and your only investment outlet is a 7 percent long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year. Use Appendix B and Appendix C.

(a)

What single payment could be made at the beginning of the first year to achieve this objective? (Round “PV Factor” to 3 decimal places and final answer to 2 decimal places. Omit the “$” sign in your response.)

  Single payment made

$ [removed]  

(b)

What amount could you pay at the end of each year annually for ten years to achieve this same objective? (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Amount to be paid

$ [removed]  

Franklin Templeton has just invested $9,660 for his son (age one). This money will be used for his son’s education 18 years from now. He calculates that he will need $53,667 by the time the boy goes to school.

What rate of return will Mr. Templeton need in order to achieve this goal? Use Appendix A and Appendix B.(Round “PV Factor” to 3 decimal places and final answer to the closest interest rate. Omit the “%” sign in your response.)

  Rate of return

 [removed] %  

You wish to retire in 20 years, at which time you want to have accumulated enough money to receive an annual annuity of $24,000 for 25 years after retirement. During the period before retirement you can earn 10 percent annually, while after retirement you can earn 12 percent on your money.

What annual contributions to the retirement fund will allow you to receive the $24,000 annuity? Use Appendix C and Appendix D. (Round “PV Factor” and “FV Factor” to 3 decimal places and final answer to 2 decimal places. Omit the “$” sign in your response.)

  Annual contribution

$ [removed]  

Rusty Steele will receive the following payments at the end of the next three years: $17,000, $20,000, and $22,000. Then from the end of the fourth year through the end of the tenth year, he will receive an annuity of $23,000.

At a discount rate of 10 percent, what is the present value of all future benefits? Use Appendix B and Appendix D. (Round “PV Factor” to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value of all future benefits

$ 

If your aunt borrows $52,000 from the bank at 10 percent interest over the eight-year life of the loan. UseAppendix D.

(a)

What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? (Round “PV Factor” to 3 decimal places and final answer to 2 decimal places. Omit the “$” sign in your response.)

  Annual payments

$

[removed]  

(b)

How much of her first payment will be applied to interest? To principal? (Round your answers to 2 decimal places. Omit the “$” sign in your response.)

First
payment

  Interest

$

[removed]

  Principal

$

[removed]

(c)

How much of her second payment will be applied to each? (Round your answers to 2 decimal places. Omit the “$” sign in your response.)

Second
payment

  Interest

$

[removed]  

  Principal

$

[removed]  

You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a fund of semiannual payments to be compounded semiannually to accumulate a sum of $210,000 after 8 years at an 10 percent annual rate (16 payments). The first payment into the fund is to take place six months from today, and the last payment is to take place at the end of the 8th year. Use Appendix A andAppendix C.

(a)

Determine how much the semiannual payment should be. (Round “FV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Semi-annual payment

$

[removed]  

On the day after the sixth payment is made (the beginning of the fourth year) the interest rate goes up to a 12 percent annual rate, and you can earn a 12 percent annual rate on funds that have been accumulated as well as all future payments into the fund. Interest is to be compounded semiannually on all funds.

(b)

Determine how much the revised semiannual payments should be after this rate change (there are 10 payments and compounding dates). The next payment will be in the middle of the fourth year. (Round “FV Factor” to 3 decimal places, intermediate and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Revised semi-annual payments

$

[removed]  

Your uncle offers you the choice of $108,000 in 10 years or $37,000 today. Use Appendix B.

(a)

Calculate the present value of $108,000, if the money is discounted at 11 percent? (Round “PV Factor” to 3 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)

  Present value

$ [removed]  

(b)

Which choice should you choose?