David Lynch needs $20,000,000 to start shooting his new feature film, Ronnie Rocket. He can invest $5,000,000 from his own pocket. To get the remaining $15,000,000, his manager, Ari Gold, is trying to find a co-producer or an investor who is willing to lend but no one volunteers as his films are perceived to be too risky compared to usual Hollywood projects. Hence, Mr. Gold advises Mr. Lynch to deposit his $5,000,000 into a savings account with an interest rate of 6% per year (annually compounding) until he accumulates the necessary $20,000,000. How long should Mr. Lynch wait until he can start shooting Ronnie Rocket? Solve this problem using Time Value of Money equations and be sure to show all of your vork.

David Lynch needs $20,000,000 to start shooting his new feature film, Ronnie Rocket. He can invest $5,000,000 from his own pocket. To get the remaining $15,000,000, his manager, Ari Gold, is trying to find a co-producer or an investor who is willing to lend but no one volunteers as his films are perceived to be too risky compared to usual Hollywood projects. Hence, Mr. Gold advises Mr. Lynch to deposit his $5,000,000 into a savings account with an interest rate of 6% per year (annually compounding) until he accumulates the necessary $20,000,000. How long should Mr. Lynch wait until he can start shooting Ronnie Rocket? Solve this problem using Time Value of Money equations and be sure to show all of your vork.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Lola is currently opening a series of restaurants around Coventry. She needs to raise £2million pounds from new investors. She decides to raise it in the following way. She issues a contract for the new investors promising a fixed amount of £2.5 million pounds next year if they invest now. If Lola does not pay the promised amount, investors would take over the restaurants. If she pays then Lola will keep full ownership. This contract is an example of: (a) A bank loan. (b) A corporate bond. (c) Private equity. (d) An Initial public offering. (e) A rights issue.
Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,530 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,070 and $850, respectively.Alternatively, Mr. Fitch could purchase for $9,960 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,440 and $2,350, respectively.Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.Required Determine the payback period and unadjusted rate of return (use average investment) for each…
2. Jane Summers has just inherited millions from her mother's estate. She is considering investing part of these funds in a small catering business. She would need to purchase a delivery van, equipment, and inventory costing $150,000 to equip the business. Jane's marketing studies indicate that the annual net cash inflow from the business will amount to $36,000. Jane wants to operate the catering business for only 6 years. She estimates that the equipment will have a $10,000 salvage value at the end of that time and that she will just retire and close down the business. Jane's required rate of return is 10%. (Note: relevant present value tables are in the textbook in ch 26 at pg 1121, or use from other sources, as desired.)Required:Compute the net present value of this investment. What would you advise Jane based on your calculations? Show your calculations, including any present value table amounts.
Jordan, Catherine, and Ashley invest $21,000, $12,000, and $17,000, respectively, to build a boat. After the boat was built, Jordan decided to sell his share of the investment to Catherine and Ashley. How much would Catherine and Ashley have to pay Jordan if they want to maintain the same ratio of their investments in the boat? a. How much would Catherine would have to pay? b. How much would Ashley have to pay?
The CEO of Garneau Cinemas is considering making a movie and must decide between a comedy and a thriller-it doesn't have the production space to make both. The comedy is expected to cost $20 million up front (at t = 0). After that, it is expected to make $11 million in the first year (at t = 1) and $4 million in each of the following two years (at t = 2 and t = 3). In the fourth year (at t = 5), it is expected that the movie can be sold into syndication for $2 million with no further cash flows back to Garneau Cinemas. The thriller is expected to cost $45 million up front (at t = 0). After that, it is expected to make $25 million in the first year (at t = 1) and $4 million in each of the following four years (at t = 2, 3, 4, and 5). In the sixth year (at t = 6), it is expected that the movie can be sold into syndication for $30 million with no further cash flows back to Garneau Cinemas. The cost of capital is 10%, and Garneau usually requires projects to have a payback within four…
Sarah Palin reportedly was paid a $11 million advance to write her book Going Rogue. The book took one year to write. In the time she spent writing, Palin could have been paid to give speeches and appear on TV news as a political commentator. Given her popularity, assume that she could have earned $8 million over the year (paid at the end of the year) she spent writing the book. Assume that once her book is finished, it is expected to generate royalties of $5 million in the first year (paid at the end of the year) and these royalties are expected to decrease by 40% per year in perpetuity. Assuming that Palin's cost of capital is 10% and given these royalties payments, the NPV of Palin's book deal is closest to:
Bob just retired, and wants to move his $600,000 retirement into safer investments. He has found a very safe municipal bond fund paying 3% interest, a riskier corporate bond fund paying 7% interest, and a stock paying 5%. He wants to make sure that the stock recieves 500 more than twice the amount from the safe municipal bond. He wants to invest as little as possible in the riskier account, but needs to earn $37,440 per year to live on. Set up a system of equations that would allow Bob to determine how much to invest in each account. Be sure to define your variables clearly. You do not need to solve the problem, just set it up.
Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,980 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,010 and $840, respectively. Alternatively, Mr. Fitch could purchase for $9,960 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,380 and $2,400, respectively. Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent. Required a. Determine the payback period and unadjusted rate of return (use average investment) for each…
Sarah and Doug want to set up a company to start a business importing children’s toys from Europe into New Zealand. They will both be directors and equal shareholders. They each pay $500,000 for 100 shares each. The company will have assets (personal property) worth $950,000 and $50,000 in cash reserves. The company will borrow $100,000 from Big Bank to make the first purchase of toys from Europe. The company’s assets do not have any securities registered over them. Which of the following statements are INCORRECT? As the directors of the company, Sarah and Doug are personally liable for the $100,000 debt that the company will incur. The company will carry on existing if either Sarah or Doug retires as a director or sells their shares. The company is a separate legal person and its debts are separate from those owed by Sarah and Doug. Sarah and Doug will be able to issue additional shares and sell them if they want to raise additional funds for their company in the future.
2. A friend of yours is considering quitting his job as an engineer to become a wedding photographer. He thinks that he will make more money this way. His current job as an engineer pays him $87,500 annually. To switch to wedding photography, he will have to purchase photography equipment that will cost him $12,000. He also does not expect to make much money when he first starts out. He estimates that he would make $39,000 in his first year. But as he gets his name out there, he expects to make $7500 more each year. Assuming an interest rate of 5% and a 20-year analysis period, compute the net present worth of both options to recommend to your friend whetherhe should become a wedding photographer or not. Answer: ???= $1,090,425, ?W?= $1,212 ,678 Can someone show how this was solved?
a) Your nephew, a chartered accountant in good standing, who is working with Corona Company Ltd., a multinational company as the chief accountant, returned home after work very moody. Upon enquiring about his change in mood, he informed you that he was in a dilemma. He continued that Corona Company Ltd. is preparing a bid document for a government contract worth billions of dollars. However, the company’s current financial position would not make it the best candidate to be awarded the said contract. Yet, to remain competitive in the bid process, the Board Chairman has instructed your nephew to ‘make the numbers work’ to increase the company’s chances in securing the contract. Your nephew is hesitant about the instruction from the Board Chairman but thinks his job could be at stake. With the knowledge you have acquired in this course, advice your nephew on how best to deal with this episode to minimize rift between the Board Chairman and himself. b) As a professional ethics…

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