Gitman_12e_525314_IM_ch04.doc - TMC Business
1) If you invested 12,000 today in a mutual fund that is expected to provide an annually compounded average return of 13% over the next 7 years, how much will you have in your account at the end of the 7th year?
|28,231.27 |
What if the investment compounded interest monthly?
|29,666.87 |
2) Your company wants to buy a piece of equipment that will cost 500,000 in 12 years. If you can invest your company’s money at an average return of 10%, how much do you need to invest in a lump sum today to pay cash for the asset?
|159,315.41 |
What would the monthly investment requirement be?
|1808.72 |
3) I have just won the LOTTO. The jackpot was 20 million dollars. The state has offered me one million dollars per year for 20 years (ignore taxes) or a lump sum. The lump sum is the present value of the payments. How much must the state invest today (the lump sum amount) to payout the annuity, if they can invest at the T-Bond rate of 6%? (ignore taxes)
|11,469,921 |
If I can invest at an average of 12%, how much can I withdraw from the lump sum per year over the 20 year window?
|1,535,579 |
Should I take the lump sum or the 1 million dollar annuity? WHY?
4) Our company is considering a project that will provide the following after tax cash flows to the firm:
CF1 90,000
CF2 125,000
CF3 175,000
CF4 200,000
CF5 190,000
CF6 – 9 165,000
CF10 145,000
If we have a required return of 14% for this project, what is the value
of the project to the company?
|799,153 |
If we had to pay 700,000 for the project today, should we purchase
the project?
|yes |
5) When you retire you will initially require an annual income of 125,000 per year. You anticipate living for 25 years during retirement with an 8% investment return. How much do you need in your pension plans to cover this need?
|1,334,347 |
How much will you have to invest monthly over the next 35 years to acquire that amount of money, if you can earn 13% on your investments?
|1,582 |
6) I want to purchase a house in Florida. The current value is $350,000. I would like to put 25% down and make the purchase in 5 years. Houses in the area are appreciating at 6% per year. The forecasted mortgage rate at the time of purchase is 7.5% for 30 years.
Future cost of the house?
|468,378 |
Down payment?
|117,094 |
Mortgage amount?
|351,284 |
Monthly payments to get down payment, if I can invest at 15%?
|1,321.98 |
Monthly payment of the mortgage?
|2,456.23 |
Copy and Paste Special the first 6 months of the amortization table from the worksheet. What is the reduction in principal in month 1? (3)
If you made an additional payment per year (1/12 more per month or made biweekly pmts), How much interest would you save?
|139,614 |
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