QUESTION #17

Your mother is planning to retire this year. Her firm has offered her a lump-sum retirement payment of $55,000 or a $4,000 lifetime annuitywhichever she chooses. Your mother is in reasonably good health and expects to live for at least 19 more years. Calculate the present values of each alternative, assuming that an 6 percent interest rate is appropriate to evaluate the annuity. Use Table IV or a financial calculator to answer the question. Round your answer to the nearest dollar.

Lump sum payment: $

Lifetime annuity: $

Which option should she choose?

QUESTION # 18

Construct a loan amortization schedule for a 3-year, 11 percent loan of $50,000. The loan requires three equal, end-of-year payments. Use Table IV or a financial calculator to answer the question. Round your answers to the nearest dollar.

End of Year	Payment	Interest (11%)	Principal Reduction	Balance Remaining
0	-	-	-	$ 50,000
1	$	$	$
2
3

QUESTION # 19

Mitchell Investments has offered you the following investment opportunity:

• $10,000 at the end of each year for the first 7 years, plus
• $4,000 at the end of each year from years 8 through 11, plus
• $3,000 at the end of each year from years 12 through 24.

Use Table II and Table IV or a financial calculator to answer the questions. Round your answers to the nearest dollar.

1. How much would you be willing to pay for this investment if you required a 13 percent rate of return? $

2. If the payments were received at the beginning of each year, what would you be willing to pay for this investment? $

QUESTION # 20

Upon retirement, your goal is to spend 7 years traveling around the world. To travel in the style to which you are accustomed will require $225,000 per year at the beginning of each year. If you plan to retire in 30 years, what are the equal, annual, end-of-year payments necessary to achieve this goal? The funds in the retirement account will compound at 13 percent annually. Use Table III and Table IV or a financial calculator to answer the question. Round your answer to the nearest dollar.

$

QUESTION #21

The chairman of Heller Industries told a meeting of financial analysts that he expects the firms earnings and dividends to double over the next 6 years. The firms current (that is, as of year 0) earnings and dividends per share are $5.25 and $1.75, respectively. Use Table I and Table II to answer the questions.

1. Estimate the compound annual dividend growth rate over the 6-year period. Round FVIF value in intermediate calculation to three decimal places. Round your answer to the nearest whole number. %
2. Forecast Hellers earnings and dividends per share for each of the next 6 years, assuming that they grow at the rate determined in Part a. Use the growth rate rounded to the nearest whole percent. Round your answers to three decimal places.

   Year	Dividend	EPS
   1	$	$
   2	$	$
   3	$	$
   4	$	$
   5	$	$
   6	$	$

3. Based on the constant growth dividend valuation model, determine the current value of a share of Heller Industries common stock to an investor who requires a 17 percent rate of return. Do not round intermediate calculations. Round your answer to the nearest cent. $
4. The stock price calculated in part c might not represent an accurate valuation to an investor with a 17 percent required rate of return because the growth rate will -Select-increasedecreasealways stay the sameItem 15 .
5. Determine the current value of a share of Heller Industries common stock to an investor (with a 17 percent required rate of return) who plans to hold it for 6 years, assuming that earnings and dividends per share grow at the rate determined in part a for the next 6 years and then at 4 percent thereafter. Do not round intermediate calculations. Round your answer to the nearest cent. $

QUESTION # 22

Over the past 10 years, the dividends of Party Time Inc. have grown at an annual rate of 14 percent. The current (D₀) dividend is $3.1 per share. This dividend is expected to grow to $3.7 next year, then grow at an annual rate of 9 percent for the following 2 years and 6 percent per year thereafter. You require a 14 percent rate of return on this stock. Use Table II to answer the questions. Do not round intermediate calculations. Round your answers to the nearest cent.

1. What would you be willing to pay for a share of Party Time stock today? $
2. What price would you anticipate the stock selling for at the beginning of year 3? $
3. If you anticipated selling the stock at the end of 2 years, how much would you pay for it today? $

QUESTION #23

The stock of Carrolls Bowling Equipment currently pays a dividend (D₀) of $2. This dividend is expected to grow at an annual rate of 15 percent for the next 3 years. The dividend is expected to increase by $3 in Year 4 and to grow at a constant annual rate of 6 percent thereafter. If you require a 20 percent rate of return on an investment such as this, how much would you be willing to pay per share? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.

QUESTION # 24

The Foreman Companys earnings and common stock dividends have been growing at an annual rate of 5 percent over the past 10 years and are expected to continue growing at this rate for the foreseeable future. The firm currently (that is, as of year 0) pays an annual dividend of $5 per share. Determine the current value of a share of Foreman common stock to investors with each of the following required rates of return. Use a minus sign to indicate negative answers and NA to indicate undefined answers. Round your answers to the nearest cent.

1. 12 percent $
2. 14 percent $
3. 16 percent $
4. 5 percent $
5. 2 percent $

QUESTION # 25

The VSE Corporation currently pays no dividend because of depressed earnings. A recent change in management promises a brighter future. Investors expect VSE to pay a dividend of $0.75 next year (the end of year 1). This dividend is expected to increase to $2 the following year and to grow at a rate of 8 percent per annum for the following 2 years (years 3 and 4). Chuck Brown, a new investor, expects the price of the stock to increase 60 percent in value between now (time zero) and the end of year 3. If Brown plans to hold the stock for 2 years and requires a rate of return of 18 percent on his investment, what value would he place on the stock today? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.

$

QUESTION #26

The following stock quotations were recently reported in The Wall Street Journal:

47.67	30.6	10.2	AT&T	T	3.5	20	39.33	0.27
95.21	68.38	0.2	Boeing	BA	1.2	34	90.77	-0.51
71	50.22	-9	JohnsJohns	JNJ	1.9	13	60.66	-0.08

1. What are the dividend yields on the common stock of AT&T, Boeing, and Johnson & Johnson? Round your answers to one decimal place.

   AT&T: %

   Boeing: %

   Johnson & Johnson: %

2. What is the current priceearnings ratio for Boeing and Johnson & Johnson? Round your answers to the nearest whole number.

   Boeing = times

   Johnson & Johnson = times

3. What was the previous days closing price for AT&Ts common stock? Round your answer to the nearest cent. $

QUESTION #27

Konawalskis Kustom Erdapfel Chips, Inc., is the maker of gourmet German-style potato chips. The company began business three years ago in rural North Carolina and grew quickly as the product became known. Konawalski is now poised for national growth. Some analysts call the firm the next Krispy Kreme. The company pays a dividend of $0.05 per share. Earnings per share are currently $0.50, and analysts expect both earnings and dividends to grow at 24 percent per year for the next 5 years. The stock price is expected to increase in value by 60 percent over the next 3 years. If you believe that investors require a 24 percent rate of return on a stock of this risk, what price would you recommend as the IPO price for Konawalski? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.

$

QUESTION #28

The common stock of General Land Development Company (GLDC) is expected to pay a dividend of $1 next year and currently sells for $22. Assume that the firms future dividend payments are expected to grow at a constant rate for the foreseeable future. Determine the implied growth rate of GLDCs dividends (and earnings), assuming that the required rate of return of investors is 13 percent. Round your answer to the nearest whole number.

%

QUESTION # 29

Simtek currently pays a $3.25 dividend (D₀) per share. Next years dividend is expected to be $3.5 per share. After next year, dividends are expected to increase at a 7 percent annual rate for 3 years and a 5 percent annual rate thereafter. Use Table II to answer the questions. Do not round intermediate calculations. Round your answers to the nearest cent.

1. What is the current value of a share of Simtek stock to an investor who requires a 17 percent return on his or her investment? $
2. If the dividend in year 1 is expected to be $3.5 and the growth rate over the following 3 years is expected to be only 6 percent and then 5 percent thereafter, what will the new stock price be? $

QUESTION #30

Ten years ago, Video Toys began manufacturing and selling coin-operated arcade games. Dividends are currently $2.25 per share, having grown at a 13 percent compound annual rate over the past 5 years. That growth rate is expected to be maintained for the next 3 years, after which dividends are expected to grow at half that rate for 3 years. Beyond that time, Video Toyss dividends are expected to grow at 4 percent per year. What is the current value of a share of Video Toys common stock if your required rate of return is 18 percent? Use Table II to answer the question. Do not round intermediate calculations. Round your answer to the nearest cent.

$