You are considering an investment in a technology company similar to Herjavec Group Inc. The new company, Newtech, has experienced impressive growth over the past five years, and further growth is expected in future years. You plan to purchase 100 shares of Newtech. There are 28 000 shares outstanding.
1. At the beginning of the past year, Newtech borrowed $1 200 000 at 4.86% compounded annually, with the agreement to pay it back over 10 years in quarterly payments:
(a) How much must be paid in each payment?
(b) How much must be paid in each year?
(c) How much interest must be paid over the entire 10 years?
2. This year’s income for Newtech is targeted to be $5.6 million. The company pays out annual dividends to its shareholders of 1.0% of income.
(a) If you purchase the shares, how much in dividends would you expect to receive based on the targeted income for this year?
(b) If you receive the same dividend amount for the next 10 years, and invest the dividends in a savings account earning 3% compounded monthly, what would be the savings account balance at the end of 10 years?