Problem set 1. II. You are planning to save for retirement over the next 30 years. To do this, you will invest 700 a month in a stock account and 300 in a bond account. The return of the stock account is expected to be 11 %, and the bond account will pay 7%. When you retire, you will combine your money into an account with 9% return. How much can you withdraw each month from your account assuming a 25-year withdrawal period? Quepos Real Estate Inc. expects to earn $110 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity to invest $12 million today and $7million in one year in real estate. The new investment will generate annal earnings of $10 million in perpetuity, beginning two years from today. The firm has 20 million shares of common stock outstanding, and the required rate of return on the stock is 15%. Land investments are not depreciable. Ignore taxes. submarine Year deepwater 1. Draw the time line. 0 ($600 000) ($1 800 000) 2. What is the price of a share of stock if the 1 $270 000 $ 1 000 000 firm does not undertake the new investment? 2 $350 000 $700 000 3. What is the value of the investment? 3 $300 000 $900 000 What is the per-share stock price if the firm undertakes the investment? Consider the following cash flows on two mutually exclusive projects for Tomatina Recreation SA. Both projects require an anuual return of 15 per cent. 1. Choose the project with the shorter payback period. 2 Choose the project with the greater IRR. 3. Choose the better project based on the incremental IRR. Compute the project with the higher NPV. II. 93