The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay$10,000 annually forever with the first payment in exactly one year. Considering thatDoesn’t Pay has a low rating from Fitch, you would require a 15% return. What is themost that you would be willing to pay for the contract? The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay$10,000 annually forever with the first payment in exactly five years. Considering thatDoesn’t Pay has a low rating from Fitch, you would require a 15% return. What is themost that you would be willing to pay for the contract?

The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay$10,000 annually forever with the first payment in exactly one year. Considering thatDoesn’t Pay has a low rating from Fitch, you would require a 15% return. What is themost that you would be willing to pay for the contract? The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay$10,000 annually forever with the first payment in exactly five years. Considering thatDoesn’t Pay has a low rating from Fitch, you would require a 15% return. What is themost that you would be willing to pay for the contract?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 3P: Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of...

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Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.
Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay $10,000 annually forever with the first payment in exactly one year. Considering that Doesn’t Pay has a low rating from Fitch, you would require a 15% return. What is the most that you would be willing to pay for the contract?
The Doesn’t Pay Life Insurance Co. is selling a perpetuity contract that promises to pay $10,000 annually forever with the first payment in exactly five years. Considering that Doesn’t Pay has a low rating from Fitch, you would require a 15% return. What is the most that you would be willing to pay for the contract?
Maybepay Life Insurance Co. is selling a perpetual annuity contract that pays $3300 monthly. The contract currently sells for $336,000. a. What is the monthly retun on this investment vehicle? b. What is the APR? c. What is teh effective annual return?
The Perpetual Life Insurance Co. is trying to sell you an investment policy that will pay you and your heirs $15,000 per year forever. If the required return on this investment is 8 percent, how much will you pay for the policy? Suppose the Perpetual Life Insurance Co. told you the policy costs $195,000. At what interest rate would this be a fair deal? Please do not answer in handwritten..thanku
Moonlight Industries just signed a sales contract with a new customer. JK will receive annual payments in the amount of $50,000, $96,000, $123,000, and $138,000 at the end of Years 1 to 4, respectively. What is this contract worth at the end of Year 4 if the firm earns 3.75 percent on its savings? Can the excel and calculator solution be provided?
The Perpetual Life Insurance Company is trying to sell you an investment policy that will pay you and your heirs $19,500 per year forever. a. If the required return on this investment is 6.1 percent, how much will you pay for the policy? b. Suppose the Perpetual Life Insurance Company told you the policy costs $500,000. At what discount rate would this be a fair deal?
Lola's Furniture is offering a "houseful of furniture" for $9,999. Furthermore, if you make a down payment of $999 you can wait for 1½ years to pay the $9,000 balance. If Lola's Furniture immediately sells the $9,000 receivable contract to the Barzini Finance Group at a discount rate of 18% compounded quarterly, how much money will Lola's actually receive for the "houseful of furniture"?
Please Solve This Question The D.J. Masson Corporation needs to raise 500,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 3/10, net90, and it currently pays on the 10th day and takes discounts. However, it could forgo the discounts, pay on the 90th day, and thereby obtain the needed$500,000 in the form of costly trade credit. What is the effective annual interest rate of this trade credit?
A company has the following payment options to settle a loan: ■ Option A: To pay $19,000 today, or ■ Option B: To pay $10,000 today and $9500 in one year. If money earns 4% compounded daily, which option is more economical for the company and by how much
A successful businessman is selling one of his fast food franchises to a close friend. He is selling the business today for $2,698,400.00. However, his friend is short on capital and would like to delay payment on the business. After negotiation, they agree to delay 4.00 years before the first payment. At that point, the friend will make quarterly payments for 18.00 years. The deal calls for a 9.60% APR “loan” rate with quarterly compounding. What quarterly payment will the friend make on the loan?