The preferred stock for Ironhide Steel Corporation guarantees annual dividends of P50.00 per share. If an investor desires a rate of return of 10% for his investment, how much should he be willing to pay for a share of Ironhide stock? (Ans. P500.00)
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- A student plans to deposit P1,500 in the bank now and another P3,000 for the next two years. If he plans to withdraw P5,000 three years from after his last deposit for the purpose of buying shoes, what will be the amount of money left in the bank after one year of his withdrawal? The effective annual rate of interest is 10%.Q4. RKE & Associates is considering the purchase of a building it currently leases for $30,000 per year. The owner of the building put it up for sale at a price of $170,000, but because the firm has been a good tenant, the owner offered to sell it to RKE for a cash price of $160,000 now. If purchased now, how long will it be before the company recovers its investment at an interest rate of 15% per year?Two years ago, the initial public offering for a share of Wayne Industries common stock was P75.00. Last year, an investor computed a rate of return of 15% after receiving dividends of P6.OO per share. Assuming a constant growth rate, determine the dividends to be paid this year. (Ans. P6.42/share)
- An investment of 15,000,000 yields net annual revenues of 11,500,000. What is the simple payback period?A large automobile manufacturer has developed a continuous variable transmission (CVT) that provides smooth shifting and enhances fuel efficiency by 2 mpg of gasoline. The extra cost of a CVT is $800 on the sticker price of a new car. For a particular model averaging 28 miles per gallon with the CVT, what is the cost of gasoline (dollars per gallon) that makes this option affordable when the buyer’s interest rate is 10% per year? The car will be driven 100,000 miles uniformly over an eight-year period.What do you mean by internal rate of return (IRR)? Find the IRR of an investment having initial cash outflow of $213,000. The cash inflows during the first, second, third and fourth years are expected to be $65,200, $96,000, $73,100 and $55,400 respectively.
- You are planning for retirement 34 years from now. You plan to invest $4,200 per year for the first 7 years, $6,900 per year for the next 11 years, and $14,500 per year for the following 16 years (assume all cash flows occur at the end of each year). If you believe you will earn an effective annual rate of return of 9.7%, what will your retirement investment be worth 34 years from now?A multinational engineering consulting firm that wants to provide resort accommodations to special clients is considering the purchase of a three-bedroom lodge in upper Montana that will cost $295,000. The property in that area is rapidly appreciating in value because people anxious to get away from urban developments are bidding up the prices. If the company spends an average of $775 per month for utilities and the investment increases at a rate of 0.75% per month, how long would it be before the company could sell the property for $100,000 more than it has invested in it? The time it will take is ____________months.You are being asked to evaluate the worthiness of an investment that requires you to spend $100,000 today in return for receiving $30,000 each year for seven years, beginning four years from now. Which of the following statements is TRUE If the MARR = 10%, I would conclude that this is a profitable investment. Present Worth = $30,000 X 7 - $100,000. If the MARR = 10%, I would conclude that this is not a profitable investment.
- The following cash flows result from a potential construction project for your company: Receipts of $545,000 at the start of the contract and $1,200,000 at the end of the fourth year Expenditures at the end of the first year of $400,000 and at the end of the second year of $900,000 A net cash flow of $0 at the end of the third year. Using an appropriate rate of return method (Approximate ERR), for a MARR of 20%, should your company accept this project (Perform all calculations using 5 significant figures and round your answer to one decimal place. ) What is the approximate ERR for this project? % Should your company undertake this project?A firm that manufactures freezer for delivery vans currently has excess capacity. The firm expects that it will exhaust its excess capacity in three years. At that time it will have to invest P2,500,000 to build new capacity. Suppose that the firm can accept additional work as a subcontractor for another company. By doing so, the firm will receive a net cash inflow of P150,000 immediately and in each of the next three years. However, the firm will have to begin expansion two years earlier than originally planned to bring new capacity on line. Assume a discount rate of 12%. a. What is the NPV if the firm accepts the subcontractor job? b. What is the minimum amount that should be received from the subcontractor job for the company to accept it?A businessman is faced with the prospect of fluctuating future budget for the maintenance of the generator. During the first 5 years, P1,000 per year will be budgeted. During the second five years, the annual budget will be P1,500 per year. In addition, P3,500 will be budgeted for an overhaul of the machine at the end of the fourth year and another P3,500 for an overhaul at the end of 8th year. Assuming compound interest at 6% per annum, what is the equivalent annual cost of maintenance?