Question

CORP FIN FINAL PT D

25. You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You are planning on investing in an account which will pay 7.5% annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire (there could be more than one answer)?

A. Invest in a different account paying a higher rate of interest. B. Invest in a different account paying a lower rate of interest. C. Retire later. D. Retire sooner.

26. In calendar 2018, you earned a salary of $55,000. You expect to be given 4% annual merit increases on January 1 of each year for the foreseeable future. What is your projected annual salary in 2023? (Show calculation)

27. You have won a contest that will pay you $10,000 a year at the end of each of the next 5 years. Based on a discount rate of 8% per year, what is the annuity worth to you today? (Show calculation)

1. How much should you be willing to pay for one share of stock if the company just paid a $2.75 dividend, you expect the dividends to increase by 5% annually, and you need a 14% return on your investment? (Show calculation)

1. What is the net present value of a project that has an upfront cash outlay of $30,000, and generates cash inflows of $15,000 in year 1, $20,000 in year 2, and $25,000 in year 3 assuming that the company’s cost of capital is 12.5% per year? (Show calculation)

45. You are depositing $18,000 in a retirement account today and expect to earn an average return of 6% per year on this money. How much additional income will you earn if you leave the money invested for 24 years instead of just 20 years?

PLEASE SHOW YOUR WORK NO SCREEN SHOTS OR IMAGES OF RESPONSE. PLEASE TYPE YOUR ANSWER OR UPLOAD DOCUMENT IF REQUIREMENTS MENTIONED ABOVE ARE NOT MET I WILL GIVE A NEGATIVE RATING

Answer 1

Answer to Q#25:

Option-(A): Invest in a different account paying a higher rate of interest and Option-(C): Retire later.

Reason:

There is an inverse relation between interest rate and quantum of deposit. That is, to reach a future goal of a specified amount, initial deposit will be lesser if rate of interest is higher; initial deposit will be higher if rate of interest is lower due to perodical interest expected to be accumulated over the investment period. Hence, Option-(A) holds.

There is an inverse relation between investment period and quantum of deposit. That is, to reach a future goal of a specified amount, initial deposit will be higher if investment period is lesser; initial deposit will be lower if investment period is higher due to # periods involved in interest accumulation over the investment period. Hence, Option-(C) too holds.