Please answer all of the following problems by typing the numerical solution into the spaces provided beneath each question. attach an Excel file – ,,1. An investment will require a $1.0 million cash outlay. It will generate perpetual net cash inflows of $115,000 a year. Investors could earn 9 percent elsewhere by taking the same risk. Will this investment generate an economic profit?,For Example: Answer the economic profit is $xxx,xxx.,,2. A new capital investment that will cost $2.5 million and will generate perpetual net cash flows of $400,000 a year. Investors could expect to earn 8 percent elsewhere while taking the same risk. Will this investment generate an economic profit?,,3. During and economic downturn, we can acquire another company by purchasing its stock for $6 billion. The company is earning $700 million a year, which is available for dividends, and that level of income is expected to continue whether the company remains independent or we acquire it. If we acquire the company, though, we can use a joint sales force to reduce cost and thus increase our income by $300 million a year indefinitely. The acquisition candidate has approximately the same risk as our company, and because our industry is cyclical, our investors require an 8 percent return. Is the investment attractive?,,4. If an investment is expected to return of 5 percent in the future, a $53,000 investment will grow to how much in 22 years?,,5. You purchased your house 5 years ago for $110,000 and based on recent appraisals it can be sold today for $141,000. What effective annual rate of return did you earn?,,6. To buy a retirement home, you will need $525,000 in 18 years. If funds can be invested at an effective return of 6 percent a year, how much must you invest today to have the desire amount?,,7. You decide to max-out your annual investment into your Individual Retirement Account and invest $6,000 at the end of each year for the next 17 years. At the end of this investment period, you will have how much if you earn an effective annual return of 6 percent? ,,8. Suppose you decide to invest $6,000 in an Individual Retirement Account at the beginning of each year for 19 years. If a 6 percent return is earned, you will have how much at the end of the investment period?,,9. You want $750,000 to upgrade your store in 8 years. The treasurer wants to make equal payments at the end of each year into a fund for the purpose of accumulating this amount. If the fund can earn an effective annual return of 5 percent, how much must the company invest at the end of each year?,,10. You borrowed $547,000 for the purchase of your new home. This loan carries an annual percentage rate of 4.85 percent. It will be paid off through equal monthly payments including both principal and interest, over a 30-year period. What is the monthly payment required?,,11. A credit card company runs an ad quoting a nominal interest rate of 32 percent on charges. What is the effective interest rate if interest is compounded monthly?,,12. Published salary surveys indicate that Chartered Financial Analyst earn $65,000 more per year than their non-chartered counterparts. Over 100,000 people are taking this three year series of exams this year. If this charter raises your average salary by $65,000 (per year) over your 25-year working life and money costs you 6 percent, how much is this certification worth today? (Assume year-end cash flows.),,13. You plan to retire in 35 years and can invest to earn 7 percent. You estimate that you will need $85,000 at the end of each year for an estimated 25 years after retirement, and you expect to earn 5 percent during those retirement years. How much do you need to set aside at the end of each year to accumulate the money necessary for your retirement? (Assume year-end cash flows.),,14. If an MBA cost $35,000 and money can be invested to earn 7 percent, how much does the annual salary for a person holding a masters degree have to exceed that of other college graduates for the masters degree to be financially feasible? (Assume a 35-year working life.),,15. Assume that you can receive $25,000 per year forever and that your cost of money is 7%. What is this opportunity worth today? ,,16. Assume that you can receive $42,000 per year forever and this cash flow will grow at 4% forever. With a cost of money of 8 percent, what is this opportunity worth today? ,,,Please answer the questions below the spaces provided. Thank you and Good Luck.,1. What are agency problems? and between what two stakeholders do agency problem typically occur?,,,2. Can a business have a positive accounting profit and a negative economic profit? Please explain.,,,3. What is competitive advantage and why is it important?,,,4. What level of profits can you earn in a perfectly competitive market and what drives markets towards perfect competition over the long run?,
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