23. Captain Kidd has a map that has a 20% probability of leading him to a treasure worth 400,000 guineas. Independent of the fact of having a map, Capitan Kidd already has his own income equal to 90,000 guineas. Another pirate wants to buy the map from the Capitan Kidd (after selling the map Capitan Kidd has no chance to find a treasure). What is the minimum price for a map which the Captain Kidd will accept if Capitan Kidd has von Neuman- Morgenstern utility function is U(w) = w0.5, where w is his income level? a) 54,400 b) 32,500 c) 45,000 d) 90,000 e) There is no correct answer
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- Linda Jackson, a financial analyst at Ken and Bradley, a leading real estate firm, is thinking about recommending that Ken and Bradley invest in a piece of land that costs K85,000. She is certain that next year the land will be worth K91,000, a sure K6,000 gain. Given that the guaranteed interest rate in the bank is 10 percent, should Ken and Bradley undertake the investment in land?Spongebob and his best friend Patrick Star have decided to open a bubble stand. Unfortunately, Spongebob and Patrick are short of capital and ask Mr. Krabs if he is interested in investing in the bubble stand. Mr. Krabs, who loves money, lends the bubble stand $15,000 at an interest rate of 10%, paid annually. Spongebob purchased a new bubble stand for $15,000, five-year useful life and zero salvage value, and invests in inventory (bubbles and wands) of $2,000. They maintain an inventory of $2,000 at all times. The bubble stand had an outstanding first year with sales of $25,000. Spongebob reported the bubble stand had a gross margin of 75%, general and administrative expenses were $2,500, and marketing is 10% of sales. The bubble stand paid dividends of $1000 to both Spongebob and Patrick. The firm's tax rate is 25%. a. What are earnings before interest and taxes? b. What is net income? c. What is cash flow from operations? d. What is free cash flow for equity?Socrates owns just one ship. The ship is worth $200 million dollars. If the ship sinks, Socrates loses $200 million. The probability that it will sink is .02. Socrates' total wealth including the value of the ship is $225 million. He is an expected utility maximizer with utility U(W) equal to the square root of W. What is the maximum amount that Socrates would be willing to pay in order to be fully insured against the risk of losing his ship? a. $4 million b. $2 million c. $3.84 million d. $4.82 million e. $5.96 million
- 1. Anton has P100,000 now, he would like to invest his money in a money market security that earns 6% per annum. How much would be his money worth 10 years from now. Prepare an excel table 2. Jenny wanted to buy her dream house. Its estimated value 10 years from now is P5,000,000. Jenny wanted to know the worth of the dreamhouse today. What is now the present value of the house at 10% per year 3. On January 1, 2021, Rupert acquired a machine worth P1,000,000. He would like to pay it by installment every year for 5 years starting December 31, 2021.The interest rate as of this time is 12% per year. How much is the annual periodic payment to be made by Rupert. Prepare an excel table for the amortization. 4. If you have 100 pesos today and you invest it for 50 years with the money earning at 12% per annum compounded yearly. How much is the peso equivalent fifty years from now.Mr. Ahmet, who won a prize of 1 million USD by participating in a quiz show, will provide a significant return if he uses it in repo, time deposit and bonds. However, careful decisions need to be made as to which area to invest. If the money is deposited in the bank, the bank pays interest once a month and pays 16% interest. Mr. Ahmet wants to buy 2 houses, one worth 900000 USD and the other 500000 USD, in the future, by investing this money in the bank. Accordingly, after how long is it possible for Ahmet Bey to buy these two houses with the money and income he earned? If you were Mr. Ahmet, how would you advise him to use this money?3. Henry is saving his money to purchase ACE Engineering Company at a cost of $1,000,000. He currently has $230,000 and the rate of interest is currently 5%. How long will he have to wait, before he can purchase the company? Please show all working.
- Kirk Van Houten, who has been married for 20 years, would like to buy his wife an expensive diamond ring with a platinum setting on their 30-year wedding anniversary. Assume that the cost of the ring will be $19,851 in 10 years. Kirk currently has $4,500 to invest. What annual rate of return must Kirk earn on his investment to accumulate enough money to pay for the ring? The annual rate of return Kirk must earn on his investment is ______%. (Round to the nearest integer.) PVIF table is attachedMr. Grayson is considering giving up his paid employment and going into business on his ownaccount. He is considering buying a quarry pit with a “life” of about 35 years. To purchase thisbusiness, he would have to pay sh 4,750,000 now. Mr. Grayson wishes to retire in 20 years’time. He predicts that the net cash operating receipts from this business will be sh 1,250,000 perannum for the first 15 years and sh 1,000,000 per annum for the last 5 years. He thinks that thebusiness could be sold at the end of the 20 year period for sh 1,500,000. Additionally, heestimates that certain capital replacements and improvements would be necessary and this shouldamount to sh 100,000 per annum for the first 5 years; sh 150,000 per annum for the next 5 years,sh 200,000 per annum for the next 7 years and nothing for the last three years. This expenditurewould be incurred at the start.Mr. Grayson has excluded any compensation to himself from the above data. If he shouldpurchase the business, however, he…Amna, an inventor, has developed an exciting new process for producing an infinite supply of energy from salt water. Amna believes that she can sell her invention to a major oil company. Amna is asking for a Royalty of $6.5 Million dollars, payable at the end of year one and then increasing at the rate of 5.5% per year forever. If an appropriate discount rate is 16%, how much should Amna accept if the company wants to pay her a lump sum amount today?a. $33.3 Millionb. There is no correct answer given.c. $60 Milliond. $40 Million
- Armin was able to develop a new weapon that could efficiently eliminate a Titan. Because of his need for immediate money to support his other projects, he decided to put the newly developed weapon for sale. Mr. Reiss offers 4.5M payable 1M downpayment, and the balance payable P250,000 semi-annually for 7 years. Ms. Hange made a counter-offer of P5,000,000 payable 20% downpayment, the rest payable in P500,000 annually for 8 years. If money is 10% effective, how much is the difference between the two bids? Who made the better offer?Kirk Van Houten, who has been married for 24 years, would like to buy his wife an expensive diamond ring with a platinum setting on their 30-year wedding anniversary. Assume that the cost of the ring will be $10,000 in 6 years. Kirk currently has $4,515 to invest. What annual rate of return must Kirk earn on his investment to accumulate enough money to pay for the ring? You are considering investing in a security that will pay you $3,000 in 32 years. a. If the appropriate discount rate is 11 percent, what is the present value of this investment? b. Assume these investments sell for $1,315 in return for which you receive $3,000 in 32 years. What is the rate of return investors earn on this investment if they buy it for $1,315?9. Gilmore agree to join with Raymond and set up an internet café. The following are the investments of the partners: 1. Gilmore will invest ten sets of computers and a printer unit with a total list price of P275,000 but the cash price is only P260,000. He will also invest furniture and fixtures with a cost price of P58,000 less accumulated depreciation of P8,000. Fair market value of this is only P40,000. 2. Raymond will put up enough cash to make the total assets P500,000. 3. They further agree to recognize bonus so that both partners will have an interest over the partnership. Direction: a. Record the actual contribution of Gilmore. b. Record the investment of Raymond including the bonus transfer from Gilmore.