A pension plan has promised to pay out $25 million per year over the next 15 years to its employees. Actuaries estimate the rate of return on the fund's assets will be 5.50%. What amount of pension fund reserves (to the nearest dollar) are needed for the plan to be fully funded?
2. Using agency theory concepts, explain how restrictive covenants that forbid leases and liens on a firm's assets might cause the firm to achieve a higher rating on its bonds than would be possible without such covenants.
Computing terminal-year FCF: Healthy Potions, Inc., a pharmaceutical company, bought a machine that produces pain-reliever medicine at a cost of $2 million five years ago.. The machine has been depreciated over the past five years, and the current book value is $800,000. The company decides to...
Your boss asks you to compute the company's cash conversion cycle. Looking at the financial statements, you see that the average inventory for the year was $126,300, accounts receivable were $97,900, and accounts payable were at $115,100. You also see that the company had sales of $324,000...
Your boss asks you to compute the company's cash conversion cycle. Looking at the financial statements, you see that the average inventory for the year was $126,300, accounts receivable were $97,900, and accounts payable were at $115,100. You also see that the company had sales of...
Investment cash flows: Six Twelve is considering opening up a new convenience store in downtown New York City. The expected annual revenue is $800,000. To estimate the increase in working capital, analysts estimate the ratio of cash and cash-equivalents to revenue to be 0.03, and the ratio of...
Use both the Time Value of Money equations and a financial calculator to find the following values. A. An initial $500 compounded for 10 years at 6% B. An initial $500 compounded for 10 years at 12% C. The present value of $500 due in 10 years at a 6% discount rate. D. The present value of...
need assistance. Using the finite risk contract found in the attachment, how much would the policy holder get back at the end of three years if loss payments at year-end were: a. $3 million in year 1; $3 million in year 2; and $3 million in year 3? b. $8 million in year 1; $1 million in...
Suppose the money multiplier in the U.S. is 3. Suppose further that if the Federal Reserve changes the discount rate by 1 percentage point, banks change their reserves by 300. To increase the money supply by 2700 the Federal Reserve should A. reduce the discount rate by 3 percentage points...
why there are differences in implied volatilities for different options on the same underlying with the same expiration (volatility smiles and smirks.)
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1. Can you help me with this valuation problem?: Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,200 at the end of each year and assume that you can sell the car for after-tax proceeds of $5,000 at the end of the planned 5-year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 6% after taxes.
- a.Identify the cash flows, their timing, and the required return applicable to valuing the car.
- b.What is the maximum price you would be willing to pay to acquire the car? Explain.
2. How do you calculate the before tax-cost of the Sony bond and the after-tax cost of the Sony bond given the following information?:
- David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the security:
- Sony bond
- Par value $1,000 Coupon interest rate 6% Tax bracket 20%
- Cost $930 Years to maturity 10