Fill This Form To Receive Instant Help
Homework answers / question archive / 1
1.Mr Jones on his 59 th birthday wants to borrow some money. He can repay the loan with two payments of $5000 made at different times. The first payment when he turns 62 and the second when he turns 65. The current leading rate at the time of his 59 th birthday is 6.1%.
(a) How much will they lend Mr Jones?
(b) If he repays the loan in full, what rate of interest was realized?
2.
As a firm grows, it must support increases in revenue with new investments in assets. The self-supporting, or sustainable, growth model helps a firm assess how rapidly it can grow, while maintaining a balance between its cash outflows (increases in noncash assets) and inflows (funds resulting from increases in liabilities or equity).
Consider the following case of Fuzzy Button Clothing Company:
Fuzzy Button Clothing Company has no debt in its capital structure and has $300,000,000 in assets. Its sales revenues last year were $150,000,000 with a net income of $5,000,000. The company distributed $105,000 as dividends to its shareholders last year.
Given the information above, what is Fuzzy Button Clothing Company’s sustainable growth rate?
1.66%
2.7318006%
0.7314494%
0.0349772%
Which of the following are assumptions of the sustainable (self-supporting) growth model? Check all that apply.
A. The firm maintains a constant net profit margin.
B. The firm maintains a constant ratio of assets to equity.
C. Common stock is the firm’s only form of equity.
D. The firm uses all equity and no debt financing.
3. Consider a quote from a 2016 academic working paper entitled "Multifaceted Aid for Low-Income Students and College Outcomes: Evidence from North Carolina." The quote is: "Launched in 2004, the Carolina Covenant combines grant-heavy financial aid with an array of non-financial supports for low-income students at an elite public university. We find that the program increased four-year graduation rates by about 8 percentage points for eligible students in the cohorts who experienced the fully developed program." Suppose the graduation rate for eligible students had been 32 percent before the program. Fill in the blank for this alternate conclusion: "We find that the program increased four-year graduation rates by about _-_- percent for eligible students in the cohorts who experienced the fully developed program." (Record your answer as an integer.)
4.
1.
(a) How much will they lend Mr Jones?
We need to find the present value of his payments
PV = CF62/(1 + r)^3 + CF65/(1 + r)^6
PV = 5,000/(1 + 0.061)^3 + 5,000/(1 + 0.061)^6
PV = 4,186.2373927599 + 3,504.9167017083
PV = $7,691.1540944682
This is the amount they will lend to Mr Jones
(b) The realized rate of return will be equal to the lending rate = 6.1% when he repays the loan in full.
2.
Sustainable growth rate= ROE*b/(1-ROE*b)
Where
ROE= Return on Equity= Net Income/Equity.
Since there is no debt, Equity= Assets= $300,000,000
b= Plowback ratio= 1-(Dividend/Net income)
Given,
Net income= $5,000,000
Dividend= $105,000
Plugging the values,
ROE= 5,000,000/300,000,000= 0.016667
Plowback ratio= 1-105,000/5,000,000 = 0.979
Sustainable growth rate= 0.016667*0.979/(1-0.016667*0.979) = 1.66% (rounded)
Answer is the first choice given.
The following, among the choices given, are assumptions of the sustainable (self-supporting) growth model:
A. The firm maintains a constant net profit margin.
B. The firm maintains a constant ratio of assets to equity.
Regarding others which are not correct:
There is no assumption of zero debt. The assumption is that the capital structure shall be constant.
3.Earlier rate before the program= 32% i.e. .32
increase in graduation rate by 8%
Hence the four year program experinced an incease = .32*1.08= .3456
hence the increase is about = .3456-.32=.0256 i.e. 2.56% or 2.56 in integer term.
4.
1. This needs working ut the future value of ordinary annuity of |
Pmt.= $10 |
at an interest rate , r= 5%/12=0.4167% or 0.004167p.m. |
for n= 50*12= 600 months |
Using the formula for FVOA & plugging in the above values, |
FVOA=Pmt.*((1+r)^n-1)/r |
ie. 10*((1+0.4167%)^600-1)/0.4167%= |
26690.18 |
(Answer) |
2.Formula to be used is |
Future value of ordinary annuity |
FVOA=Pmt.*((1+r)^n-1)/r |
where, |
FVOA-----needs to be found out----?? |
Pmt.= $ 1000 at end of yrs. 1 to 17 |
r= interest rate, 4% or 0.04 p.a. |
n= no.of pmts.= 17 |
Using the above formula for FVOA & plugging in the above values, |
ie.(1000*((1+0.04)^17-1)/0.04) |
23697.51 |
(ANSWER) |
Amount of money in your savings account, Immediately after your grandparents make the deposit on your 18th birthday = $ 23697.51 |
The mortgage amortisation table for 1st 10 pmts. Have been shown , as under ---due to space constraints-----in the answer tab |
No.of mth. | Mthly.pmt. | Tow. Int. | Tow. Mortgage | Mortgage Bal. |
0 | 250000 | |||
1 | 2535.7 | 1875 | 660.67 | 249339.33 |
2 | 2535.7 | 1870.045 | 665.625 | 248673.7 |
3 | 2535.7 | 1865.053 | 670.6172 | 248003.09 |
4 | 2535.7 | 1860.023 | 675.6468 | 247327.44 |
5 | 2535.7 | 1854.956 | 680.7142 | 246646.73 |
6 | 2535.7 | 1849.85 | 685.8195 | 245960.91 |
7 | 2535.7 | 1844.707 | 690.9632 | 245269.94 |
8 | 2535.7 | 1839.525 | 696.1454 | 244573.8 |
9 | 2535.7 | 1834.303 | 701.3665 | 243872.43 |
10 | 2535.7 | 1829.043 | 706.6268 | 243165.81 |
4..Contract's worth today |
is the sum of the present values of all the amounts at 8% cost of capital |
ie.(36000/(1+0.08)^1)+(50000/1.08^2)+(50000/1.08^3)+(50000/1.08^4)+(60000/1.08^5)+(60000/1.08^6)= |
231288.55 |
If all the above are saved for end of Yr. 6, |
we can direcly, find the Future of this single sum of $ 231288. 55 (PV at t=0) , at 8% per period , for 6 periods |
ie. 231288.55*(1+0.08)^6= |
367025.86 |
5. Amount you will be able to borrow for the car today |
is the Present value of the end-of monthly payments of $ 300 p.m. |
at r=4%/12=0.3333% or 0.0033 p.m. |
for n= 4 yrs.*12= 48 no.of mthly. Pmts. |
So, using the Present value of ordinary annuity |
PVOA=Pmt.*(1-(1+r)^-n)/r |
PVOA=300*(1-(1+0.0033)^-48)/0.0033= |
13297.19 |
ie. The amount you will be able to borrow for the car today= $ 13297.19 |
6. Using the PV of ordinary annuity formula, |
PVOA=Pmt.*(1-(1+r)^-n)/r |
where, PVOA= $ 100000 |
Pmt.= the quarterly pmt.--to be found out----?? |
r= rateof interest per quarter, ie. 9%/4=0.0225 or 2.25% per qtr. |
n= no.of pmt.- qtrs., ie. 5*4= 20 |
So, using the Present value of ordinary annuity formula, |
100000=Pmt.*(1-(1+0.0225)^-20)/0.0225 |
The qtrly. Pmt.=100000/((1-(1+0.0225)^-20)/0.0225) |
6264.21 |
The amortisation table is as follows |
No.of Qtrs. | Qtrly. Pmt. | Tow. Int. | Tow. Loan | Loan Bal. |
1 | 2 | 3=Prev. 5*2.25% | 4=2-3 | 5=Prev. 5-Currrent 4 |
0 | 100000 | |||
1 | 6264.21 | 2250 | 4014.21 | 95985.79 |
2 | 6264.21 | 2159.68 | 4104.53 | 91881.26 |
3 | 6264.21 | 2067.33 | 4196.88 | 87684.38 |
4 | 6264.21 | 1972.90 | 4291.31 | 83393.07 |
5 | 6264.21 | 1876.34 | 4387.87 | 79005.20 |
6 | 6264.21 | 1777.62 | 4486.59 | 74518.61 |
7 | 6264.21 | 1676.67 | 4587.54 | 69931.07 |
8 | 6264.21 | 1573.45 | 4690.76 | 65240.31 |
9 | 6264.21 | 1467.91 | 4796.30 | 60444.00 |
10 | 6264.21 | 1359.99 | 4904.22 | 55539.78 |
11 | 6264.21 | 1249.65 | 5014.56 | 50525.22 |
12 | 6264.21 | 1136.82 | 5127.39 | 45397.83 |
13 | 6264.21 | 1021.45 | 5242.76 | 40155.07 |
14 | 6264.21 | 903.49 | 5360.72 | 34794.35 |
15 | 6264.21 | 782.87 | 5481.34 | 29313.01 |
16 | 6264.21 | 659.54 | 5604.67 | 23708.34 |
17 | 6264.21 | 533.44 | 5730.77 | 17977.57 |
18 | 6264.21 | 404.50 | 5859.71 | 12117.85 |
19 | 6264.21 | 272.65 | 5991.56 | 6126.30 |
20 | 6264.21 | 137.84 | 6126.37 | -0.07 |
125284.20 | 25284.13 | 100000.07 |