Finance Answers

Your daughter is born today and you want her to be a millionaire by the time she is
35 years old. You open an investment account that promises to pay 12% per year.
How much money must you deposit each year, starting on her 1st birthday and
ending on her 35th birthday, so your daughter will have RM1,000,000 by her 35th
birthday?

A couple borrows $10,000 to buy a car. The loan Agreement specifies that monthly payments are to be made for four years. The annual interest rate is 12 percent. Determine the monthly payment.

The Smith Construction Company borrows the entire cost of a new dump truck. The loan has an annual interest rate of 12 percent and calls for monthly payments of $ 1,000 over a five year period. What is the cost of truck.

A corporate bond specifies that interest of $400 is to be paid every six months for 20 years, and then the $1,000 principal or face value of the bond also will be paid. The market interest rate for bonds of this quality is 10 percent per year. What is the market value of this bond?

A loan Agreement specifies that a payment of $133.33 are to be made each month for five years. the annual interest rate specified is 6 percent. What is the amount of loan?

Micro Spin offs Inc, issued 20-year debt a year ago at par value with a coupon rate of 9%, paid annually. Today, the debt is selling at $1050. If the firm's tax bracket is 35%, what is its after tax cost of debt?

1. Micro spinoffs also has preferred stock outstanding. The stock pays a dividend of $4 per share, and the stock sells for $40. What is the cost of preferred stock?

2. Suppose Micro Smirnoff's cost of equity is 12.5%. What is the WACC if equity is 50%, preferred stock is 20% and debt is 30% of total capital.

Royal Company is considering the introduction of new equipment which cost $95,000. The equipment has useful life of four years and is in the three years property class for tax purposes. Shipping and installation charges are $5000. Machine has expected salvage value of $16500. No additional networking capital is needed. The new equipment will generate additional net operating cash flows before the depreciation and taxes as follows

Time Year 1 Year 2 Year 3 Year 4
Net Cash Flows 34000 37000 56000 35000

if the machine tax rate is 30%, calculate

1) The initial Cash flow
2) Interim incremental net cash flow
3) terminal year end incremental net cash flows (depreciation percentages 33.33%, 44.45%, 14.81% and 7.41%)

Royal Company is considering the introduction of new equipment which cost $95000. The equipment has useful life of four years and is in the three years property class for tax purpose. Shipping and installation charges are $5000, machine has expected salvage value of $16500. N additional net working capital is needed. The new equipment will generate additional net operating cash flows before depreciation and taxes as follows

Time Year 1
Net Cash Flows 34000

Acme tobacco is currently selling 5000 pounds of pipe tobacco per year. Due to competitive pressures, the average price of a pipe declines from $15 to $12. As a result, the demand for Acme pipe tobacco increases to 6000 pounds per year.

a) What is the cross elasticity of demand for pipes and pipe tobacco?
b) Assuming that the cross elasticity does not change, at what price of pipes would the demand for pipe tobacco be 3,000 pounds per year? Use $15 as the initial price of a pipe.

Book Co. has 1.1 million shares of common equity with par (book) value of $1.35 and retained earnings of $28.5 million, and its shares have a market value of $50.29 per share. It also has debt with a par value of $18.4 million that is trading at 101% of par.

a. What is the market value of its equity?
b. What is the market value of its debt?
c. What weights should it use in a computing its WACC?