Question

a.) Jill plans to save $4,000 per year at the end of each of the next 15 years. If she currently has no savings and earns 8.2% each year on her savings, what amount will she have in her account at the end of 15 years?

b.) James' Office Supplies is planning the cash budget for May. The firm had $200,000 in sales in April and expects $180,000 in sales in May. Usually 60% of sales are cash and 40% are collected one month later. The total cash disbursements are expected to be $120,000 in May.

(1) What is the expected total amount of cash receipts for James' Office Supplies in May?

(2) What is net cash flow expected for the firm in May?

c.)The firm just paid a dividend of $1.35 per share on its common stock. What is the value of the common stock, assuming a constant growth rate in the dividend of 8% and a required rate of return of 16%?

d.)A firm's stock was purchased for $18.87 per share and sold a year later for $24.53 per share. During the year, the firm paid a $0.87 dividend per share. What is the total rate of return earned on this stock investment?

Answer 1

a]	Amount at the end of 15 years = 4000*(1.082^15-1)/(0.082*1.082^15) =	$ 33,823.74
b]
1]	Total cash receipts for May = 180000*60%+200000*40% =	$ 1,88,000
2]	Net cash flow for May = 188000-120000 =	$          68,000
c]	Price of the stock = 1.35*1.08/(0.16-0.08) =	$            18.23
d]	Total rate of return = (0.87+24.53-18.87)/18.87 =	34.61%