Question
1) Analysts predict that your company's earnings will grow at 40% per year for the next five years. After that, earnings growth is expected to
1) Analysts predict that your company's earnings will grow at 40% per year for the next five years. After that, earnings growth is expected to slow to 2% per year and continue at that level forever. Your company has announced earnings of $2 million. What is the Present Value of all future earnings if the interest rate is 10%? (Assume all cash flows occur at the end of the year.)
2) The house costs $200,000. You have $29,000 in cash that you can use as a down payment on the house, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires annual payments and has an interest rate of 8% per year. What will your annual payment be if you sign up for this mortgage?
3) You decice you need to save $2,000,000 by the time you are 65. Today is your 30th birthday and you decide starting today, and continuing on every birthday including your 65th birthday, that you will put the same amount into a savings account. If the interest rate is 7%, the amount you deposite each year to make sure that you will have $2,000,000 in the account on your 65th birthday?
4) You have an investment opportunity that requires an initial investment of $9,500 today and will pay $9,000 in one year. What is the IRR of this opportunity?
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