Case # 1

Michele Sadie is ready to meet with Mark Bal, the loan officer for Wells Fargo. She is asking to borrow $12 million for her company. The meeting is to discuss the mortgage options available to the company to finance the new facility.

Mark begins the meeting by discussing a 30-year mortgage. The loan would be repaid in equal monthly installments. Because of the previous relationship between Sadie Manufacturing and the bank, there would be no closing costs for the loan. Mark states that the APR of the loan would be 5.5 percent. Ms. Sadie asks if a shorter mortgage loan is available. Mark says that the bank does have a 20-year mortgage available at the same APR.

Mark also suggests a bullet loan, or balloon payment, which would result in the greatest interest savings. At Micheles prompting, he goes on to explain a bullet loan. The monthly payments of a bullet loan would be calculated using a 30-year traditional mortgage. In this case, there would be a 5-year bullet. This would mean that the company would make the mortgage payments for the traditional 30-year mortgage for the first five years, but immediately after the company makes the 60^th payment, the bullet payment would be due. The bullet payment is remaining principal of the loan. Ms. Sadie then asks how the bullet payment is calculated. Mark tells her that the remaining principal can be calculated using an amortization table, but it is also the present value of the remaining 25 years of mortgage payments for the 30-year mortgage.

Michele has also heard of an interest-only loan and asks if this loan is available and what the terms would be. Mark says that the bank offers an interest-only loan with a term of 10 years and an APR of 4.25 percent. He goes on to further explain the terms. The company would be responsible for making interest payments each month on the amount borrowed. No principal payments are required. At the end of the 10-year term, the company would repay the $12 million. However, the company can make principal payments at any time. The principal payments would work just like those on a traditional mortgage. Principal payments would reduce the principal of the loan and reduce the interest due on the next payment.

Michele is still unsure of which loan she should choose. She has asked you to answer the following questions to help her choose the correct mortgage.

What are the monthly payments for a 30-year traditional mortgage?

What are the payments for a 20-year tradition mortgage?

Prepare an amortization table for the first six months of the traditional 30-year loan. How much of the sixth payment is interest?

What are the payments for the interest-only loan?

Which mortgage is the best for the company? Are there any potential risks in this action?

Case # 2 The Pizza Dough Machine

As the owner of a pizza parlor, you are considering whether to buy a fully automated pizza dough preparation machine. Your staff is wildly supportive of the purchase because it would eliminate a tedious part of their work. Your accountant provides you with the following information:

The cost, including shipping, for the pizza machine is $27,200.

Cash savings, including labor, raw materials, and tax savings due to depreciation, are $4000 per year for 10 years. R=10 percent.

As you arrive at the pizza parlor in the morning, the staff is in a festive mood because word has leaked out that the new machine will save the shop $40,000 and only cost $27,200.

Calculate the payback period, internal rate of return, net present value, and the profitability index of the proposed endeavor.

Based on your analysis, should the owner of pizza parlor buy the pizza dough machine?

Case #3 TVM

Picking the Best Lottery Payoff Option

Congratulations! You have won the $ 1 million lottery grand prize. You have been presented with several payout alternatives, and you have to decide which one to accept. The alternatives are as follows:

$1 million today

$1.15 million lump- sum in two years.

$1.55 million lump-sum in five years.

$2 million lump-sum in eight years.

Your cousin, s stockbroker, advises you that over the long-term you should be able to earn ten percent on an investment portfolio. You are intrigued by the choice of collecting the prize money today or receiving double the amount of money in the future. Which payout option should you choose?

The Growth Rate of the World's Population

Hannah, an industrial relations major, is writing a term paper and needs an estimate on how fast the world population is growing. In her almanac, she finds that the worlds population was an estimated 7.1 billion people at the end of 2014. The United Nations estimates that the population will reach 9 billion people at the end of 2054. What will be the worlds population at the end of 2019, if you use the annual growth rate implied by United Nations numbers?

Pay Damages or Appeal?

Timber, Ins., lost a lawsuit in a business dispute. The judge ordered the company to pay the plaintiff $175,000 in one year. Timbers attorney advises Timber to appeal the ruling. If so, Timber will likely lose again and will still have to pay the $175,000. But by appealing, Timber moves the $175,000 payment to year 2, along with the attorneys fee of $20,000 for the extra work. The interest rate is 7 percent. What decision should Timber make?

APR vs EAR

Mary Jo plans to invest some money so that she has $8,000 at the end of three years.

	Option A	Option B	Option C	Option D
APR	5.19%	5.11%	5.20%	5.40%
m/per year	365	12	4	1

How much should she invest today given the choices above?

What is her best choice?

What is the EAR for each account? Support your decision in question 2.

Physical therapy equipment purchase

Your firm needs to buy additional physical therapy equipment that costs $20,000. The equipment manufacturer will give you the equipment now if you will pay $6,000 per year for the next four years. If your firm can borrow money at a 9 percent interest rate, should you pay the manufacturer the $20,000 now or accept the four-year annuity offer of $6,000?

Case #4 Valuing Stock

The dividend has grown from $1.00 per share on November 13, 2012 to $2.80 during 2018. You think this growth rate will continue for three more years and then fall to the long-term growth rate of 9.29 percent predicted by analysts. Discount rate is 13 percent.

Given these parameters, the companys stock is worth____________ per share.

I'm still learning finance, may i have step-by-step how to slove these four case, it will be very greatful if you could help me on this, Thank you.