Fast National University Advanced Corporate Finance Assignment 1 PDF

FAST National University Advanced Corporate Finance Assignment #1 (to be solved in group of TWO students) Instructor: Dr. S K Saeed Due Date: 03 Sep 2024 General Problems: 1. Your...

FAST National University Advanced Corporate Finance Assignment #1 (to be solved in group of TWO students) Instructor: Dr. S K Saeed Due Date: 03 Sep 2024 General Problems: 1. Your uncle dies and you learn you will receive a $100,000 in 20 years. If you could invest that money today at 6% compounded annually, what is the present value of your $100,000 inheritance in today’s dollars? 2. You are offered a signing bonus of $2,000,000 or a future payment of $2,500,000 at the end of three years from now. If you can earn 7% on invested funds, would you take the signing bonus or wait for the future payment? 3. Your rich aunt puts $35,000 into a bank account earning 4.00%. You are not to withdraw the money until the balance has doubled. About how many years will you have to wait? 4. Gina Dare, who wants to be a millionaire, plans to retire at the end of 40 years. Gina’s plan is to invest her money by depositing into an IRA at the end of every year. What is the amount that she needs to deposit annually in order to accumulate $1,000,000? Assume that the account will earn an annual rate of 11.5%. Round off to the nearest $1. 5. If you want to have $1,200 in 27 months, how much money must you put in a savings account today? Assume that the savings account pays 14% and it is compounded monthly. 6. It is January 1st and Darwin Davis has just established an IRA (Individual Retirement Account). Darwin will put $1,000 into the account on December 31st of this year and at the end of each year for the following 39 years (40 years total). How much money will Darwin have in his account at the beginning of the 41st year? Assume that the account pays 12% interest compounded annually, and round to the nearest $1,000. 7. George and Barbara will be retiring in four years and would like to buy a lake house. They estimate that they will need $150,000 at the end of four years to buy this house. They want to make four equal annual payments into an account at the end of each year. If they can earn 16% on their money, compounded annually, over the next four years, how much must they invest at the end of each year for the next four years to have accumulated $150,000 by retirement? 8. You have borrowed $70,000 to buy a sports car. You plan to make monthly payments over a 15-year period. The bank has offered you a 9% interest rate compounded monthly. Calculate the total amount of interest dollars you will pay the bank over the life of the loan. Also compute the interest to be paid to bank in first six months of lease. Assume start-of-year payments. 9. How many years will it take for an initial investment of $200 to grow to $544 if it is invested today at 8% compounded annually? 10. You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment? Assignment Problems: 11. Francis Peabody just won the $89,000,000 California State Lottery. The lottery offers the winner a choice of receiving the winnings in a lump sum or in 26 equal annual installments to be made at the beginning of each year. Assume that funds would be invested at 7.65%. Francis is trying to decide whether to take the lump sum or the annual installments. What is the amount of the lump sum that would be exactly equal to the present value of the annual installments? Round off to the nearest $1. 12. When you were born, your dear old aunt Minnie promised to deposit $1,000 in saving account for you on each of your birthday, beginning with first. The saving account bears a 5 percent compounded annually. You have just turned twenty-five and want all cash. However it turns out that old aunt (forgetful) made no deposit on your fifth, seventh, and eleventh birthdays. How much is in your account on your twenty-fifth birthday? 13. Mr. Sheikh, CEO of a multinational firm, has one son and on daughter of 10 and 8 years old. Mr. Sheikh is retiring in 9 years from now. He is expecting that after 14 years his son will go to LUMS for MBA and daughter will be married in 12 years. For these two very important expenses, the estimated expenditure in future will be Rs. 1,500,000 and Rs. 1,000,000 respectively. MCB Bank has recently offered long term deposit scheme with 12% rate of return. Mr. Sheikh wants to know that how much amount he should deposit monthly for next ten years which will make it sure payment available in time. 14. As a part of your savings plan at work, you have been depositing $250 per quarter in a savings account earning 8% interest compounded quarterly for the last 10 years. You will retire in 15 years and want to increase your contribution each year from $1,000 to $2,000 per year, by increasing your contribution every four months from $250 to $500. Additionally, you have just inherited $10,000, which you plan to invest now to earn interest at 12% compounded annually for the next 15 years. How much money will you have in savings when you retire 15 years from now? 15. Jay Coleman just graduated. He plans to work for five years and then leave for the Australian "Outback" country. He figures that he can save $3,500 a year for the first three years and $5,000 a year for the next two years. These savings will start one year from now. In addition, his family gave him a $2,500 graduation gift. If he puts the gift, and the future savings when they start, into an account that pays 7.75% compounded annually, what will his financial "stake" be when he leaves for Australia five years from now? Round off to the nearest $1.