PROBLEMS – TVOM & Valuation,,1. You just won the lottery! As your prize you will receive $1,200 a month for 100 months. If you can earn 8 percent on your money, what is this prize worth to you today? ,,,,,,2. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12 percent, what is this job worth to you today? ,,,,,,3. You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years at a 5.9 percent rate of interest. What is the amount of each payment? ,,,,,,4. You have been investing $120 a month for the last 15 years. Today, your investment account is worth $47,341.19. What is your average rate of return on your investments? ,,,,5. You just paid $350,000 for a policy that will pay you and your heirs $12,000 a year forever. What rate of return are you earning on this policy? ,,,, ,,,,6. The bonds issued by Jensen & Son bear a 6 percent coupon, payable semiannually. The bond matures in 8 years and has a $1,000 face value. Currently, the bond sells at par. What is the yield to maturity? ,,,, ,,,,,,,7. Wine and Roses, Inc. offers a 7 percent coupon bond with semiannual payments and a yield to maturity of 7.73 percent. The bonds mature in 9 years. What is the market price of a $1,000 face value bond? ,,,, ,8. Michael’s, Inc. just paid $1.40 to their shareholders as the annual dividend. Simultaneously, the company announced that future dividends would be increasing by 4.5 percent forever. If you require an 8 percent rate of return, how much are you willing to pay to purchase one share of Michael’s stock? ,,,,,9. Martha’s Vineyard recently paid a $3.60 annual dividend on their common stock. This dividend increases at an average rate of 3.5 percent per year forever. The stock is currently selling for $62.10 a share. What is the market rate of return? ,,,,10. 301 Finance is looking at a new pizza machine that will cost of $290,000. At the end of the project five years life the pizza machine can be scrapped for $50,000. The pizza machine will generate $90,000 per year for the next five years in operating cash flows. 301 Finance required rate of return is 10 percent.,,a) What is the NPV of the project? ,b) What is the IRR of the project? ,c) What is the pay back period of the project? ,,,,,,,,
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