Fin 100 Spring2001Midterm Solutions

Fin 100 Spring2001Midterm Solutions - Spring 2001 Midterm...

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Spring 2001 Midterm Solutions FNCE 100 Dr. Jaffe 1) A) Value of fund on 1/1/2001=Value of grandfather’s gift + value of parents contribution. Value of grandfather’s gift = Value of parents’ contributions = Total Value on 1/1/2001 = $85,000.5000 + $66,666.7422 = $151,667.2422 B) Annuity costs (.7)($151,667.2422) = $106,167.0695 First payment solves Last payment: $10,072.9681(1.04 24 ) =10072.9681(2.5633)= $25,820.0391 C) Amount left on 1/1/2001 after withdrawal for annuity and purchasing Corolla: $151,667.2422 - $106,167.0695 - $14,000 = $31,500.1727 Value at 1/1/2026 = (31,500.1727)(1.12 25 ) = (31,500.1727)(17.0001)=$535,506.0859 ( 29 ( 29 5000 . 000 , 85 $ 0001 . 17 000 , 5 12 . 1 000 , 5 $ 25 = = ( 29 ( 29 7422 . 666 , 66 $ 0001 . 17 8431 . 7 500 ) 12 . 1 )( ( 500 $ 25 25 % 12 = = A ( 29 9681 . 072 , 10 $ 5398 . 10 0695 . 167 , 106 $ 12 . 1 04 . 1 04 . 12 . 1 04 . 12 . 1 0695 . 167 , 106 $ 25 = = - - - = C C C
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( 29 ( 29 ( 29 0 180,415,62 ) 0373 . 3 )( 66 )(. 90 ( 000 , 000 , 1 34 . 1 90 000 , 000 , 1 4 12 . = = - A Spring 2001 Midterm Solutions FNCE 100 Dr. Jaffe 2) A) Investment = -$100,000,000 Depreciation Tax Shields = After-tax machine sale proceeds = After-tax opportunity cost of lost rental = After-tax operating expenses= After-tax operating revenue = NPV = $ 18,668,155.8648 Accept project. B) (i) After installing the machinery, MC must delay production for one year due to a patent lawsuit. Assume there are no costs associated with the lawsuit and the phones will still be produced for a full 4 years after the first year has passed. H___ L_X
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This note was uploaded on 10/06/2010 for the course FNCE 100 taught by Professor Jaffe during the Spring '10 term at UNC Asheville.

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Fin 100 Spring2001Midterm Solutions - Spring 2001 Midterm...

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