Pfin (book Only)
6th Edition
ISBN: 9781337117029
Author: Billingsley, Randy; Joehnk, Michael D.; Gitman, Lawrence J.
Publisher: Cengage Learning
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Question
Chapter 13, Problem 9FPE
a)
Summary Introduction
To determine:
b)
Summary Introduction
To determine: Rate of return on investment (borrowed fund).
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Suppose schmidt owns some land and is trying to decide when to sell it for a shopping center development. Her goal is to maximize her net worth, the present value of her other income stream plus the value of the land or the value of investment made with the proceeds of selling the land. The interest rate is 5% on the financial investment. The land is now worth $100k if sold. Suppose that the value of the land is expeted to increase at a rate that will slowly decrease over time as she waits.
A.) Suppose schmidt expects the land to be worth $104k next year. Should she sell it now? Why?
B.) If she expects it to be worth $110k in a year, should she sell now, Why?
C.) At what next year land value would Schmidt be indifferent between selling and holding a year?
Atita plans to gift $150,000 to her daughters as a gift in the future. She thinks it will help her daughter fulfil her dreams when she reaches her age to marry.
Assume her daughter is 3 years old and may get married in her 20s. Assume that Atita has $30,000 and wishes to invest that in a financial asset with a 9% rate of return per annum.
Required:
How would you define the amount of $30 000 and $150 000 in terms of the time value of money?
ANSWER a (i): (answer box will enlarge as you enter your response)
How long will she have to wait until she reaches the goal of $150 000?
ANSWER a (ii):
Mark will receive $13,500 from his parent at the end of each year for five years. He plans to invest them in a financial asset with an interest rate of 7.5%. How much money…
Your mother wants to buy a car which will cost $15,000 five years from today. She would like save $2,450 at the end of each year (for the next five years) in an account, so as to have the amount she needs. What interest (to the closest percent) must she earn in this account to achieve this financial objective?
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