5 Problems

BE2-19 Porter Company signed a lease for an office building for a period of 10 years. Under the lease agreement, a security deposit of $10,000 is made. The deposit will be returned at the expiration of the lease with interest compounded at 5% per year. What amount will Porter receive at the time the lease expires? BE2-20 Gordon Company issued $1,000,000, 10-year bonds and agreed to make annual sinking fund deposits of $80,000. The deposits are made at the end of each year into an account paying 5% annual interest. What amount will be in the sinking fund at the end of 10 years? BE2-25 Smolinski Company is considering an investment which will return a lump sum of $500,000 five year... click for more

Calculating Interest Rates and Periods

Please take a look at the attachment, I do not understand how to solve these problems without using a financial calculator. (see chart in attached file) Calculating Interest Rates. Assume the total cost of a college education will be $300,000 when your child enters college in 18 years. You presently have $40,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child’s college education? Calculating the Number of Periods. At 9 percent interest, how long does it take to double your money? To quadruple it?

Time Value of Money: Present Value of Annuity, Future Value of Annuity, EAR versus APR, monthly payment for a loan

1) Calculating Annuity Present Value. An investment offers $6,000 per year for 15 years, with the first payment occurring 1 year from now. If the required return is 8 percent, what is the value of the investment? What would the value be if the payments occurred for 40 years? For 75 years? Forever? 2) Calculating Annuity Future Values If you deposit $2,000 at the end of each of the next 20 years into an account paying 7.5 percent interest, how much money will you have in the account in 20 years? How much will you have if you make deposits for 40 years? 3) EAR versus APR. Ricky Ripov’s Pawn Shop charges an interest rate of 20 percent per month on loans to its customers. Like all lenders,... click for more

Break even EBIT and Leverage

Break-Even EBIT. Duval Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Duval would have 600,000 shares of stock outstanding. Under Plan II, there would be 300,000 shares of stock outstanding and $10 million in debt outstanding. The interest rate on the debt is 10 percent, and there are no taxes. a. If EBIT is $1.5 million, which plan will result in the higher EPS? b. If EBIT is $11 million, which plan will result in the higher EPS? c. What is the break-even EBIT? 6. Break-Even EBIT and Leverage. Hoobastank Co. is comparing two different capital structures. Plan I would result in 1,000 shares o... click for more

Check my answers please

True False 1. The discount rate is related to the capitalization rate by the relationship discount rate = capitalization rate + long term sustainable growth rate. T or F? 2. The concept of present value is the inverse of future value compounding. T or F? 3. The IRR is the discount rate that will cause the net present value NPV to be zero. T or F? 4. For a given cash flow stream, as we raise the discount rate the net present value will go lower. T or F? 5. When considering two projects the one with the higher IRR will always be the better choice. T or F? 6. Total Assets must Equal Total Liabilities minus Owner’s Equity. T or F 7. Operating profit causes an increase in owner’s equi... click for more