Exam 1- Calculation Questions Review (FINA 3332)

You are considering purchasing a new home. You will need to borrow $180,000 to purchase the home. A mortgage company offers you a 15 year fixed-rate mortgage at 6% APR. If you borrow the money from this mortgage company, your monthly mortgage payment will be closest to _______

$1,518.94

XYZ Company Expects to receive a cash flow of $2 million in five years. If the competitive market interest rate is fixed at 4% per year, how much can they borrow today in order to be able to repay the loan in its entirety with that cash flow?

$1,643,854

A C corporation earns $5.40 per share before taxes. The corporate tax rate is 21%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $4.00 dividend? (

$1.73

You are borrowing money to buy a car. If you can make payments of $250 per month starting one month from now at annual percentage of 15%, how much will you be able to borrow for the car today if you finance the amount over 5 years?

$10,508.65

Your parents set up a trust fund 10 years ago and is now worth $19,670. If the fund earned 4% per year, how much did your parents invest? What is the discount factor?

$13,288

Suppose you deposit $50 a month into an account that has a monthly interest rate of 0.75%. How much will you have in the account in 35 years?

$147,089.22

An S corporation earns $5.40 per share before taxes. The corporate tax rate is 21% the personal tax rate on dividends is 15%, and the persoal tax rate on non-dividend is 39%. What is the total amount of taxes paid if the company pays a $4.00 dividend?

$2.11

An S corporation earns $6.00 per share before taxes. The corporate tax rate is 35%, the personal tax rate on dividends is 20%, and the personal tax rate on non-dividend income is 39%. What is the total amount of taxes paid if the company pays a $2.00 dividend?

$2.34

What is the present value of an investment that will pay $700 in one year's time, and $700 every year after that, when the interest rate is 20%?

$3,500

A perpetuity has a PV of $1,000. If the interest rate is 3%, how much will the perpetuity pay every year?

$30

A business requires you to invest $5,000 today and promises to pay $1,000 in one year, $2,000 in two years, and $3,000 in three years. What is the present value of this business opportunity if the interest rate is 5% per year?

$357.95

A C Corporation earns $8.30 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid if the company pays a $6.00 dividend?

$4.14

You are scheduled to receive annual payments of $5,000 at the end of each year for the next 15 years. The discount rate is 8 percent. What is the valye of these payments today?

$42,797.39

You are interested in purchasing a new car that costs $20,000. The dealership offers you a special financing rate of 6% annual percentage rate for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer's financing deal, then your monthly car payments would be closest to $______

$469.70

Twenty years from now, you want to spend $175,000 for a fancy car. How much must you deposit as a lump sum today to achieve this goal at an annual interest rate of 6.6 percent?

$48,741

An investment pays you $2,000 at the end of this year, and $1,500 at the end of of the four following years. What is the present value (PV) of this investment, given that the interest rate is 6% per year?

$6,790.24

You hope to buy your dream car five years from now. Today, that car costs $62,500. You expect the price to increase by an average of 2.9 percent per year. How much will your dream car cost by the time you are ready to buy it?

$72,104

You plan to deposit $500 in a bank account now and $300 at the end of the year. If the account earns 7% interest per year, what will be the balance in the account right after you make the second deposit?

$835

Suppose you need $10,000 in one year for the down payment on a new car. If you can earn 7% annually, how much do you need to invest today?

$9,346

Suppose you plan to invest $20,000 in an account paying 8% interest. You will invest an additional $1000 at the end of each year for 15 years. How much will you have in the account in 15 years?

$90,595.50

You would like to have $60,000 saved in 10 years. If you can earn 7% per year on your savings, how much do you need to save each year to meet your goal?

-4343

Your parents set up a trust fund for you 10 years ago that is now worth $19,760. The fund earned 4% per year. What is the discount factor?

0.6756

If the interest rate is 5%, the six-year discount factor is equal to ____

0.7462

You would like to provide $30,000 a year forever for your heirs. How much money must you deposit today to fund this goal if you can earn a guranteed 2.5 percent rate of return?

1,200,000

XYZ Company expects to receive a cash flow of $2 million in five years. If the competitive market interest rate is fixed at 4% per year, how much can they borrow today in order to be able to repay the loan in its entirity with that cash flow?

1,643,854

If the rate of interest is 4%, then you should be indifferent about receiving $1,500.00 today or __________ in seven years

1,973.90

If the interest rate is 2%, the four-year interest rate factor is equal to _____

1.0824

You are a shareholder in a C corporation. The corporation earns $2.31 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. Assume the corporate tax rate is 25% and the personal tax rate on all income is 20%. How much is left for you after all taxes are paid? (myFinance, Chap 1)

1.39 per share

You are a shareholder in an S Corporation. The Corporation earns $2.39 per share before taxes. As a pass through entity, you will receive $2.39 for each share that you own. Your marginal tax rate is 20%. How much per share is left for you after all taxes are paid? (myFinance, Chap 1)

1.91 per share

You expect to have $11,000 in one year. A bank is offering loans at 4.0% interest per year. How much can you borrow today?

10,576.92

You have $1,000 and bank is offering 5.0% interests on deposits. If you deposit the money in the bank, how much will you have in one year?

1050

Brett has almond orchards, but he is sick of almonds and prefers to eat walnuts instead. The owner of the walnut orchard next door has offered to swap this year's crop with him. Assume he produces 1,050 tons of almonds and his neighbor produces 781 tons of walnuts. If the market price of almonds is $106 per ton and the market price of walnuts is $119 per ton: a. Should he make the exchange? b. Does it matter whether he prefers almonds or walnuts? Why or Why not? The market value of the almond crop is $___________ The market value of the walnut crop is $____________ So, should he make the exchange? (yes/no?) Does it matter whether he prefers almonds or walnuts? Why or Why not? no. his preference is irrelevant to the value of crops Is the above statement true or false?

111,300 92,939 No True

Suppose you have an investment opportunity that requires a $1000 investment today and will pay $2000 in six years. What interest rate, r, would you need to so that the present value of what you get is exactly equal to the present value of what you give up?

12.25

You want to endow a scholarship that will pay $5,000 forever, starting one year from now. If the school's endowment discount rate is %4, what amount must you donate to endow the scholarship?

125,000

You want to endow a scholarship that will pay $11,000 per year forever, starting one year from now. If the school's endowment discount rate is 8%, what amount must you donate to endow the scholarship? how would your answer change if you endow it now, but it makes the first award to a student 10 years from today? The amount you must donate today is $ _____________ How would your answer change if you endow it now, but it makes the first award to a student 10 years from today? in this case, the amount you must donate today is $__________

137,500 68,784.23

Suppose you borrow $100,000 from a bank to invest in your new business. The Bank charges an 8% interest rate and requires equal annual payments for the next 10 years and with first payment due one year from today. What is it asking for?

14,902.95

How long will it take $3,000 placed in a savings account at 12% interest to grow into $15,000?

14.2 years

You are saving for retirement. To live comfortably, you decide you will need to save $1 million by the time you are 65. Today is your 31st birthday, and you decide, starting today and countinuing on every birthday up to and including your 65th birthday, that you will put the same amount into a savings account. If the interest rate is 3%, how much must you set aside each year to make sure that you will have $1 million in the account on your 65th birthday? The amount to deposit each year is $__________

16,539.29

Suppose your firm needs to purchase a new car priced at $40,000. The dealer gives you an option to make four annual payments of $15,000 instead. The first payment is required at the end of this yearand now down payment required today. What rate of interest is the dealer charging your company?

18.45

You are thinking of purchasing a house. The house costs $350,000. You have $50,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 5% per year. What will be your annual payment if you sign this mortgage?

19,515.43

Assume that your parents wanted to have $180,000 saved for college by your 18th birthday and they started saving on your first birthday. They saved the same amount of each year on your birthday and earned 12.0% per year on their investments. a. how much would they have to save each year to reach their goal? To reach the goal of $180,000, the amount they have to save each year is $________ b. If they think you will take five years instead of four to graduate and decide to have $220,000 saved just in case, how much would they have to save each year to reach their new goal To reach the goal of 220,000 the amount they have to save each year is $_____________

3,228.72 3,946.21

What is the present value of $50,000 received 17 years from now, assuming the interest rate is 3% per year?

30,250.82

A businessman wants to buy new equipment. The dealer offers to sell the equipment for either $100,000 now, or seven yearly payments of $17,000. Which of the following is closest to the interest rate being offered by the dealer?

4.55%

Suppose the interest rate is 4.3% a. Having $400 today is equivalent to having what amount in one year? b. Having $400 in one year is equivalent to having what amount today? c. which would you prefer, $400 today or $400 in one year? Does your answer depend on when you need the money? Why or Why not? a. Having $400 today is equivalent to having what amount in one year? it is equivalent to ____________ b. Having $400 in one year is equivalent to having what amount today? it is equivalent to ____________

417.2 383.51 Which one would you prefer? today or in the future?

You are interested in purchasing a new car that costs $20,000. The dealership offers you a special financing rate of 6% annual percentage rate for 48 months. Assuming that you do not make a down payment on the auto and you take the dealer's financing deal, then your monthly car payments would be closest to _______

469.70

What is the present value of a $3,000 paid at the end of each of the next 78 years if the interest rate is 6% per year.

49,468.98

A local bank is running the following advertisement in the newspaper. "For just $5,000 we will pay you $250 forever!" The fine print in the ad says that for a $5,000 deposit, the bank will pay $250 every year in perpetuity, starting one year after the deposit is made. What interest rate is the bank advertising? The interest rate the bank is advertising is __%

5%

You just paid $500,000 for an annuity that will pay you and your heirs $25,000 a year forever. What rate of return are you earning on this policy?

5%

Your aunt lent you money, and you agreed to pay her back within six months. You offer to pay her the rate of interest of 0.5% per month. You will be able to pay her $70 next month, $85 next two months, and then $90 each month for months 4 through 6. How much can you borrow from her?

500.90

Now, your aunt deposits your payments in the bank each month, earning 0.5% per month. ($70 next month, $85 each of the next two months, and then $90 each month for months 4 through 6) How much will she have in six months from now

516.11

You are an international shrimp trader. A food producer in the Czech republic offers to pay you 2.1 million Czech koruna today in exchange for a year's supply of frozen shrimp. Your Thai supplier will provide you with the same for 2.8 million Thai Baht today. If the current competitive market exchange rates are 25.37 koruna per dollar and 40.51 baht per dollar, what is the value of this exchange to you? The cost of the shrimp from the Thai supplier in dollars is $___________ The amount of Czech producer is willing to pay for the shrimp in dollars is $____________ The profit you would mak from this trade is $_________

69,118.74 82,774.94 13,656.19

Your plan to buy a new house for $100,000. The bank offers you a 30-year loan with equal annual payments and an interest rate of 8% per year. The bank requires you that your firm pays 20% of the purchase price as a down payment, so you can only borrow $80,000. What is the annual loan payment?

7,106.19

Dan buys a property for $110,000. He is offered a 30 year loan by the bank, at an interest rate of 6% per year. What is the annual loan payment Dan must make?

7,991.38

Suppose you have $10,050 saved already, and you can afford to save $5,000 per year at the end of each year. The interest rate is 7.25% per year on your savings. How long witll it take to reach your goal of $60,000?

7.00

Suppose you have $10,050 saved already, and you can afford to save $5,000 per year at the end of each year. The interest rates is 7.25% per year on your savings. How long will take to reach your goal of $60,000?

7.00

Suppose we invest $10,000 in an account paying 10%, and we want to know how long it will take for the amount to grow to $20,000

7.27

Your insuranace agent is trying to sell you an annuity that costs $30,000 today. By buying this annuity, your agent promises that you will receive payments of $250 a month for the next 20 years. What is the annual percentage rate of return on this investment?

7.95

Your insurance agent is trying to sell you an annuity that costs $30,000 today. By buying this annuity, your agent promises that you will receive payments of $250 a month for the next 20 years. What is the annual percentage rate of return on this investment?

7.95%

You have an investment account that started with $3,000 10 years ago and which now has grown to $7,000. a. What annual rate of return have you earned (you have made no additional contributions to the account)? Your annual rate of return is ________% b. If the savings bond earns 17% per year from now on, what will the account's value be 10 years from now? The account's value in ten years will $ __________

8.84% $33,647.80

You are preparing to make monthly payments of $100, beginning at the end of this month, into an account that pays 5 annual percentage rate interest, compounded monthly. How many payments will you have made when your accountant balance reaches $10,000?

83.77

You are preparing to make monthly payments of $100, beginning at the end of this month, into an account that pays a 5 annual percentage rate interest, compounded monthly. How many payments will you have made when your account balance reaches $10,000?

83.77

You have a loan outstanding. it requires making eight annual payments of $9,000 each at the end of the next eight years. Your bank has offered to allow you to skip making the next seven payments in lieu of making one large payment at the end of the loan's term in eight years. If the interest rate on the loan is 5%, what final payment will the bank require you to make so that it is indifferent to the two forms of payment?

85,941.97

You have just taken out a five-year loan from a bank to buy an engagement ring. The ring costs $6,500. You plan to put down $1,200 and borrow $5,300. You will need to make annual payments of $1,100 at the end of each year. Show the timeline of the loan from your perspective. How would it differ if you created it from the banks perspective

Check Pearson

You plan to borrow $3,000 from a bank. In Exchange for $3,000 today, you promise to pay $3,270 in one year. What does the cash flow timeline look like from your perspective? What does it look like from the bank's perspective?

Check Pearson

You are a shareholder in a C corporation. The corporation earns $8.00 per share before taxes. After it has paid taxes, it will distribute, the rest of its earnings to you as dividend. The dividend is income to you, so you will then pay taxes on these earnings. The corporate tax rate is 25%, and your tax rate on dividend income is 20%. How much of the earnings remain after all taxes are paid?

Correct Answer: 3.20 As a shareholder, you keep $4.80 of the original $8.00. Your effective tax rate is $3.20/$8.00=40%

A lottery winner will receive $2 million at the end of each of the next ten years. What is the future value of her winnings at the time of her final payment, given that the interest rate is 7% per year? What is the present value of the same cash flows?

FV: 27.63 million PV: 14.05 million

Your parents have given you two choices: (a): They'll pay you $10,000 per year for seven years (beginning today) or (b): They'll give you their 2015 bmw M5 convertible, which you can sell for $61,000 (guranteed) today Which option should you choose if you can earn 7% annually on your investments? Why?

Option (a): 47,665 less than the 61,000

You are a shareholder in a C corporation. The corporation earns $10 per share before taxes. After it has paid taxes, it will distribute the rest of its earnings to you as dividend. The dividend is income to you, so you will then pay taxes on these earnings. The corporate tax rate is 35%, and your tax rate on dividend income is 10% How much of the earnings remain after all taxes are paid?

Solution: Corporate Tax: $10.00 x 35% = $3.50 Personal Tax: ($10.00-$3.50) x 10% = 0.65 Total Taxes $3.50 + $0.65 = $4.15 Earnings after taxes = $10.00 - $4.15 = $5.85

Honda Motor Company is considering offering a $2,100 rebate on its minivan, lowering the vehicle's price from $30,600 to $28,500. The marketing group estimates that this rebate will increase sales over the next year from 39,900 to 53,200 vehicles. Suppose Honda's profit margin with the rebate is $6,360 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? is it a good idea? The cost of the rebate will be ________ The benefit of the rebate will be ________

The cost of the rebate will be 83.79 million The benefit of the rebate will be $84.59 million Is it a good idea? True

Calculate the future value of $3,000 in a. Four years at an interest rate of 10% per year. b. Eight years at an interest rate of 10% per year c. Four years at an interest rate of 20% per year d. Why is the amount of interest earned in part (a) less than half the amount of interest in part (b)

a. 4,392.3 b. 6,430.77 c.6,220.8 Answer: results because you earn interest on past interest. Since more interest has been paid at the end of the time period than at the beginning, the money grows faster

You are trying to decide how much to save for retirement. Assume you plan to save $5,500 per year with the first investment made one year from now. You think you can earn 10.0% per year on your investments and you plan to retire in 29 years, immediately after making your last $5,500 investment a. How much will you have in your retirement account on the day you retire? The amount in the retirement account in 29 years would be $____________ b. If, instead of investing $5,500 per year, you wanted to make a one lump-sum investment today for your retiremen that will result in the same retirement saving, how much would that lump-sum need to be? You will need to make one lump sum investment toda of $_____________ c. if you hope to live for 17 years in retirement, how much can you withdraw every year in retirement (starting one year after your retirement) so that you will just exhaust your savings with the 17th withdrawal (assume your savings will continue to earn 10.0% in retirement)? The amount you can withdraw every year in retirement is $__________ d. instead, you decide to withdraw $163,000 per year in retirement (again with the first withdrawal one year after retiring), how many years will it take until you exhaust your savings? you will exhaust your savings in ______ years e. Assuming the most you can afford to save is $1,100 per year, but you want to retire with $1,000,000 in your investment account, how high of a return do you need to earn on your investments? you will need a return of ______ %

a. 817,470.11 b. 51,532.83 c. 101,909.20 d. 7.3 years e. 19.59%

You are planning to invest $3,000 in an account earning 14% per year for retirement. a. if you put the $3,000 in an account at age 23, and withdraw it 32 years later, how much will you have? b. if you wait 10 years before making the deposit, so that it stays in the account for only 22 years, how much will you have at the end?

a. in 32 years you would have $198,644.48 b. in 22 years you would have $53,583.12

The British government has a consol bond outstanding paying $300 per year forever. Assume the current interest rate is 12% per year a. What is the value of the bond immediately after a payment is made? b. What is the value of the immediately before a payment is made?

a: 2,500 b: 2,800

You are about to purchase a new car and have two payment options. You can pay $20,000 in cash immediately, or you can get a loan that requires you to pay $500 each month for the next 48 months. If the monthly interest rate you earn on your cash is 0.5%, which option would you choose?

pay 20,000 in cash- RIght Answer paying monthly: 21,290 in total