FUND.OF CORP.FINANCE PKG. F/BU >C<
16th Edition
ISBN: 9781323165997
Author: Berk
Publisher: PEARSON C
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Question
Chapter 4, Problem 21P
Summary Introduction
a.
To determine:
The true promised payment under contract including the deferred payments with interest.
Explanation:
The true promised payment under the contract including the deferred payment for 20 years is computed below:
Year | Amount ($ in millions) |
---|---|
1 | 18 |
2 | 19 |
3 | 19 |
4 | 19 |
5 | 21 |
6 | 19 |
7 | 23 |
8 | 27 |
9 | 27 |
10 | 27 |
11 | 6.71958 |
12 | 5.37567 |
13 | 4.03175 |
14 | 4.03175 |
15 | 4.03175 |
16 | 4.03175 |
17 | 4.03175 |
18 | 4.03175 |
19 | 4.03175 |
20 | 4.03175 |
Total | 263.3488 |
Working note:
Computation of amount including bonus.
The amount including bonus amount is computed as below:
YearAmount ($ in millions) | Bonus ($ in millions) | Total ($ in millions |
---|---|---|
16 | 2 | 18 |
17 | 2 | 19 |
17 | 2 | 19 |
17 | 2 | 19 |
19 | 2 | 21 |
19 | 19 | |
23 | 23 | |
27 | 27 | |
27 | 27 | |
27 | 27 |
Computation of amount including interest
The amount without interest and with interest is given below:
Year | Amount without interest ($ in millions) | Amount with 3% interest ($ in millions) |
---|---|---|
11 | 5 | |
12 | 4 | |
13 | 3 | |
14 | 3 | |
15 | 3 | |
16 | 3 | |
17 | 3 | |
18 | 3 | |
19 | 3 | |
20 | 3 |
Conclusion:
Therefore, the total promised amount under the contract is $263.3488.
b.
Summary Introduction
To prepare: The timeline of all the payments.
c.
Summary Introduction
To determine:
The present value of the contract.
d.
Summary Introduction
To determine:
The difference after comparing present value of contract with quoted value.
Expert Solution & Answer
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FUND.OF CORP.FINANCE PKG. F/BU >C<
Ch. 4 - Prob. 1CCCh. 4 - Prob. 2CCCh. 4 - Prob. 3CCCh. 4 - Prob. 4CCCh. 4 - Prob. 5CCCh. 4 - Prob. 6CCCh. 4 - Howcanan infinitely...Ch. 4 - Prob. 8CCCh. 4 - Prob. 9CCCh. 4 - Prob. 10CC
Ch. 4 - Prob. 11CCCh. 4 - Whencashflowsoccur at anon-annual interval, what...Ch. 4 - What is the intuition behind the fact that the...Ch. 4 - What must be true about a cash flow stream in...Ch. 4 - Prob. 3CTCh. 4 - Prob. 4CTCh. 4 - Prob. 5CTCh. 4 - Prob. 6CTCh. 4 - What must be true about the growth rate in order...Ch. 4 - In what types of situations would it be useful to...Ch. 4 - Prob. 1DCCh. 4 - Prob. 2DCCh. 4 - Prob. 3DCCh. 4 - Calculate the present value of the salary...Ch. 4 - Prob. 5DCCh. 4 - Prob. 1PCh. 4 - What is the present value of the following set of...Ch. 4 - You want to borrow $10,000. You figure that you...Ch. 4 - Prob. 4PCh. 4 - You have just taken out a five-year loan from a...Ch. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Prob. 8PCh. 4 - Prob. 9PCh. 4 - Prob. 10PCh. 4 - 11. Assume you can earn 9% per year on your...Ch. 4 - Prob. 12PCh. 4 - Prob. 13PCh. 4 - 14. The British government has a consol bond...Ch. 4 - Prob. 15PCh. 4 - 19. Your grandmother has been putting $1000 into a...Ch. 4 - 20. Assume that your parents wanted to have...Ch. 4 - Prob. 18PCh. 4 - Prob. 19PCh. 4 - 23. Assume that Social Security promises you...Ch. 4 - 24. When Alex Rodriguez moved to the Texas...Ch. 4 - Prob. 22PCh. 4 - A rich relative has bequeathed you a growing...Ch. 4 - Prob. 24PCh. 4 - Prob. 25PCh. 4 - Prob. 26PCh. 4 - 30. A rich aunt has promised you $5000 one year...Ch. 4 - Prob. 28PCh. 4 - Prob. 29PCh. 4 - Prob. 30PCh. 4 - 34. You have decided to buy a perpetual bond. The...Ch. 4 - Prob. 32PCh. 4 - 36. You are thinking about buying a piece oi art...Ch. 4 - 35. You are thinking of purchasing a house. The...Ch. 4 - Prob. 35PCh. 4 - Prob. 36PCh. 4 - 40. A local bank is running the following...Ch. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - 43. Suppose you currently have $5000 in your...Ch. 4 - 44. Your firm spends $5000 every month on printing...Ch. 4 - 45. You are looking to buy a car and can afford to...Ch. 4 - Prob. 43P
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