PARTI 1. 491 10 Points One of your favorite clients, Mr. and Mrs. Kohla, (an elderly couple that always bring cookies when they visit) has been very interested in hearing about your experiences at CSU. They would like to send their grandson to CSU in 10 years' time. You estimate that tuition will be $50,000 the first year, and that tuition will grow at 2.00% annually. They estimate it will take him 7 years to complete his undergraduate and Physician's Assistant degrees, provided he attends summer school. They would also like to bestow a gift of $20,000 to him upon his graduation from the PA program. How much must your clients deposit today, assuming an interest rate of 6%, in order to send their grandson to CSU and provide him with the graduation present? SHOW CORRECT AND COMPLETE TIMELINES, ROUND TO THE NEAREST DOLLAR Time lines: 2. 5 Points The Kohlas also have another grandson of whom they are very proud. They are considering offering him the following: a. $45,000 today or b. $55,000 towards a house down payment when he finishes medical school. Assuming an interest rate of 5%, which offer should the grandson accept? SHOW CORRECT AND COMPLETE TIMELINES, USE GRID FOR SOLVING, ROUND TO THE NEAREST DOLLAR Time lines: T 3. 5 Points The Kohlas would also like to know how many years it would take for an investment to quadruple if invested at 10%, compounded quarterly. SHOW CORRECT AND COMPLETE TIMELINES. USE GRID FOR SOLVING. ROUND TO TWO DECIMAL PLACES Time lines: T 5. John and Sally have been called in as consultants for a restaurant. Bad Boy Burgers moved to a new location on University Blvd., hoping to profit by the number of students wanting excellent burgers and fries at a reasonable price. Unfortunately, BBB underestimated the competition from the university's splendid Aramark cafeteria and the plethora of fast-food alternatives within walking distance from the dorms, Sales, while modest, are level and enable the corporation to pay out a steady dividend of $2.00 per share. This dividend is expected to be maintained indefinitely. BBB's biggest challenge is financing. Due to increased amounts and costs of loans, they will be subject to higher costs of capital. Currently their cost of capital is 5%, and they expect that they can lock into that cost for the next two years. They believe that the cost of capital will increase in year 3 to 8.00% and remain at that level for two years. In year they will be subject to a 10% cost of capital, which is expected to hold indefinitely. a. Find the value of BBB's stock in years 3 and 5 b. Find the value of BBB's stock today. Time lines: 6. Small Fry, Inc. has just invented a vegan-style fried chicken imitation that (supposedly) tastes like fried chicken. It has been taste-tested by a wide range of consumers and a local university is considering serving this product on Wednesdays instead of real fried chicken. The manufacturer plans to re-invest all of its earnings to expand its operations. Dividends were $2.00 per share this past year and are expected to grow at a rate of 12% per year until the end of year 4. At that time, competitors are likely to bring out the next sensational new vegan product. Analysts predict that at the end of year 4, Small Fry, Inc. will slow down production and dividend growth will slow to 6%. Small Fry's current cost of capital is 8%. I a. Find the value of Small Fry's stock today. Time lines PARTI 1. 491 10 Points One of your favorite clients, Mr. and Mrs. Kohla, (an elderly couple that always bring cookies when they visit) has been very interested in hearing about your experiences at CSU. They would like to send their grandson to CSU in 10 years' time. You estimate that tuition will be $50,000 the first year, and that tuition will grow at 2.00% annually. They estimate it will take him 7 years to complete his undergraduate and Physician's Assistant degrees, provided he attends summer school. They would also like to bestow a gift of $20,000 to him upon his graduation from the PA program. How much must your clients deposit today, assuming an interest rate of 6%, in order to send their grandson to CSU and provide him with the graduation present? SHOW CORRECT AND COMPLETE TIMELINES, ROUND TO THE NEAREST DOLLAR Time lines: 2. 5 Points The Kohlas also have another grandson of whom they are very proud. They are considering offering him the following: a. $45,000 today or b. $55,000 towards a house down payment when he finishes medical school. Assuming an interest rate of 5%, which offer should the grandson accept? SHOW CORRECT AND COMPLETE TIMELINES, USE GRID FOR SOLVING, ROUND TO THE NEAREST DOLLAR Time lines: T 3. 5 Points The Kohlas would also like to know how many years it would take for an investment to quadruple if invested at 10%, compounded quarterly. SHOW CORRECT AND COMPLETE TIMELINES. USE GRID FOR SOLVING. ROUND TO TWO DECIMAL PLACES Time lines: T 5. John and Sally have been called in as consultants for a restaurant. Bad Boy Burgers moved to a new location on University Blvd., hoping to profit by the number of students wanting excellent burgers and fries at a reasonable price. Unfortunately, BBB underestimated the competition from the university's splendid Aramark cafeteria and the plethora of fast-food alternatives within walking distance from the dorms, Sales, while modest, are level and enable the corporation to pay out a steady dividend of $2.00 per share. This dividend is expected to be maintained indefinitely. BBB's biggest challenge is financing. Due to increased amounts and costs of loans, they will be subject to higher costs of capital. Currently their cost of capital is 5%, and they expect that they can lock into that cost for the next two years. They believe that the cost of capital will increase in year 3 to 8.00% and remain at that level for two years. In year they will be subject to a 10% cost of capital, which is expected to hold indefinitely. a. Find the value of BBB's stock in years 3 and 5 b. Find the value of BBB's stock today. Time lines: 6. Small Fry, Inc. has just invented a vegan-style fried chicken imitation that (supposedly) tastes like fried chicken. It has been taste-tested by a wide range of consumers and a local university is considering serving this product on Wednesdays instead of real fried chicken. The manufacturer plans to re-invest all of its earnings to expand its operations. Dividends were $2.00 per share this past year and are expected to grow at a rate of 12% per year until the end of year 4. At that time, competitors are likely to bring out the next sensational new vegan product. Analysts predict that at the end of year 4, Small Fry, Inc. will slow down production and dividend growth will slow to 6%. Small Fry's current cost of capital is 8%. I a. Find the value of Small Fry's stock today. Time lines
