In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the price he paid for theIsland was about $24 worth of goods, including beads, trinkets, cloth, kettles, and axe heads. Many people find it laughable that Manhattan Islandwould be sold for $24, but you need to consider the future value (FV) of that price in more current times. If the $24 purchase price could have beeninvested at a 5.25% annual interest rate, what is its value as of 2018 (392 years later)?O $14,189,727,295.93O $10,488,059,305.69O $12,338,893,300.81O $16,287,339,157.07

Future value of any asset depends on time and interest rate and due to compounding effect value…

In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the price he Island was about $24 worth of goods, including beads, trinkets, cloth, kettles, and axe heads. Many people find it laughable that Manh would be sold for $24, but you need to consider the future value (FV) of that price in more current times. If the $24 purchase price co invested at a 5.25% annual interest rate, what is its value as of 2018 (392 years later)? O $14,189,727,295.93 O $10,488,059,305.69 O $12,338,893,300.81 $16 787 339 157 07

In 1626, Dutchman Peter Minuit purchased Manhattan Island from a local Native American tribe. Historians estimate that the price he Island was about $24 worth of goods, including beads, trinkets, cloth, kettles, and axe heads. Many people find it laughable that Manh would be sold for $24, but you need to consider the future value (FV) of that price in more current times. If the $24 purchase price co invested at a 5.25% annual interest rate, what is its value as of 2018 (392 years later)? O $14,189,727,295.93 O $10,488,059,305.69 O $12,338,893,300.81 $16 787 339 157 07

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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You have entered into an agreement for the purchase of land. The agreement specifies that you will take ownership of the land immediately. You have agreed to pay $50,000 today and another $50,000 in three years. Calculate the total cost of the land today, assuming a discount rate of (a) 5%, (b) 7 %, or (c) 9%. Note: Use tables, Excel, or a financial calculator. Round your answers to 2 decimal places. (FV of $1, PV of $1, FVA of $1, and PVA of $1) a. b. C. Payment Amount $ 50,000 50,000 50,000 Interest Rate 7 5% 7% 9% Answer is complete but not entirely correct. Compounding Annually Annually Annually Period Due 3 years 3 years 3 years $ Total Cost of Land Today 93,121.25 X 90,816.30✔ 88,617.30
Explain why proponents of LIFO argue that it provides a better match of revenue and expenses. In what situations would it not provide a better match? Be specific. The management of the Esquire Oil Company believes that the wholesale price of heating oil that they sell to homeowners will increase again as the result of increased political problems in the Middle East. The company is currently paying $0.80 per gallon. If they are willing to enter an agreement in November 2021 to purchase a million gallons of heating oil during the winter of 2022, their supplier will guarantee the price at $0.80 per gallon. However, if the winter is a mild one, Esquire would not be able to sell a million gallons unless they reduced their retail price and thereby increase the risk of a loss for the year. On the other hand, if the wholesale price did increase substantially, they would be in a favorable position with respect to their competitors. The company’s fiscal year-end is December 31. Discuss the…
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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…
If you were John Glaser, what would you do? Why? How will you measure the risks and rewards? Suppose Compass Box had whisky that they had bought 6 years ago as new fill whisky with inventoriable costs incurred to date (i.e., historic cost) of £300, completion cost of £130, and an expected selling price of £600. Assume that the cost to buy comparable whisky on the spot market (i.e., replacement cost) is more than £300. What journal entries would be required if: The selling price dropped to £500? The selling price remained at £600, but the replacement cost dropped to £100? The selling price dropped to £400 and the replacement cost dropped to £100? The selling price previously dropped to £400, and then recovered to £650?
As the owner of a small startup, you are faced with a fewmajor financial decisions concerning the expansion orpotential sale of your business. Based on the followingdetails, you must calculate the Present Value, Future Value,Loan Amortization and NPV/Firm Value.Present Value:You are required to have $250,000 seven years from nowfor new manufacturing equipment. Not sure how much youwill need to save as a lump-sum today, you calculate thepresent value (for the beginning of the period) with thefollowing additional details. Interest Rate of 6% with nofuture deposits.Future Value:To take advantage of the rising interest rate environmentthrough the actions of the Federal Reserve, you decide toinvest in U.S. Treasury Bills maturing in one year. Curious toknow what your investment will be worth one year fromtoday, you calculate the future value (for the end of theperiod) based on the following details. Number of period isone, interest rate is 5.25% (compounded monthly), no futuredeposits,…
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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…
Helga is considering the purchase of a small restaurant. The purchase price listed by the seller is $920,000. Helga has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be as follows: Years 1-6 7 8 9 10 Amount $ 92,000 82,000 72,000 62,000 52,000 If purchased, the restaurant would be held for 10 years and then sold for an estimated $820,000. Required: Determine the present value, assuming that Helga desires a 10 % rate of return on this investment. (Assume that all cash flows occur at the end of the year.) Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Future Amount $ 92,000 10% 82,000 10% 72,000 10% 62,000 10% 52,000 10% 820,000 10% n= Present Value Should the restaurant be purchased?
You are considering producing a new golf ball for sale in China to meet agr~wing demand in the country. This golf ball is less expensive to manufacture compared with a better-known brand, but it meets all requirements set by the United States Golf Association (USGA) for play at any competitive event. Production will require an initial outlay for the purchase of equipment worth $1,500,000. The equipment has a six-year life with an expected salvage value of $100,000. You already own the land on which the project will be located. The land has a current market value of $100,000, and its price is expected to grow by 5% per year. If you decide not to produce the golf balls, you will sell the land. You have also gathered the following information: You expect revenue of $500,000 per year for each year of operation. Your direct cost of producing the golf ball is expected to be 30% of the revenue. The operating cost, including marketing, is another 15% of the revenue. You will need to pay a…
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Sun Coast Tours is considering purchasing a new boat for use in its tour business. Relevant information concerning the boat is as follows: (Ignore income taxes.) Purchase cost Annual net cash inflows that will be provided by the boat Life of the boat Required: 1-a. Compute the payback period for the boat. (Round your answer to 1 decimal place.) Payback period Yes O No 1-b. If the company rejects all proposals with a payback period of more than five years, will the boat be purchased? year(s) Simple rate of return $232,000 $ 55,000 2-a. Compute the simple rate of return on the boat. Use straight-line depreciation based on the boat's useful life, assuming $13,600 salvage value. (Round your answer to 1 decimal place.) Yes % 2-b. Will the boat be purchased if the company's required rate of return is 14%? 14 years

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