James and Mary Watson own a small chain of McDonald’s restaurants that is valued at $2,300,000. They believe that the chain will grow in value at 12% per year compounded annually for the next 5 years. If they sell the chain, the funds will be invested at a rate of 6% compounded semiannually. They expect inflation to be 4, per year for the next 5 years. Ignore taxes, and answer the following, rounding answers to the nearest dollar at each step. (Question 1-3) 1. Find the future value of the chain after 5 years. Then find the price they should sell the chain for if they wish to have the same future value at the end of 5 years.* $4,053,386; $3,016,084 $3,016,084; $4,053,386 $4,016,084; $3,053,386 Other: Find the future value of the chain if it grows at only 2% per year for 5 years. Then find the price they should ask for the chain given a 2% growth rate per year.* $1,889,530; $2,539,384 $2,539,384; $1,889,530 $1,539,384; $2,889,530 Other: What future value would the chain be worth if it grew at their expected rate of inflation? Find the price they should ask for the chain if it grows at the rate of inflation.* $2,798,295; $2,082,133 $2,082,133; $2,798,295 $3,082,133; $2,798,295 Other:
James and Mary Watson own a small chain of McDonald’s restaurants that is valued at $2,300,000. They believe that the chain will grow in value at 12% per year compounded annually for the next 5 years. If they sell the chain, the funds will be invested at a rate of 6% compounded semiannually. They expect inflation to be 4, per year for the next 5 years. Ignore taxes, and answer the following, rounding answers to the nearest dollar at each step. (Question 1-3) 1. Find the future value of the chain after 5 years. Then find the price they should sell the chain for if they wish to have the same future value at the end of 5 years.* $4,053,386; $3,016,084 $3,016,084; $4,053,386 $4,016,084; $3,053,386 Other: Find the future value of the chain if it grows at only 2% per year for 5 years. Then find the price they should ask for the chain given a 2% growth rate per year.* $1,889,530; $2,539,384 $2,539,384; $1,889,530 $1,539,384; $2,889,530 Other: What future value would the chain be worth if it grew at their expected rate of inflation? Find the price they should ask for the chain if it grows at the rate of inflation.* $2,798,295; $2,082,133 $2,082,133; $2,798,295 $3,082,133; $2,798,295 Other:
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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Choose the correct Option.
- James and Mary Watson own a small chain of McDonald’s restaurants that is valued at $2,300,000. They believe that the chain will grow in value at 12% per year compounded annually for the next 5 years. If they sell the chain, the funds will be invested at a rate of 6% compounded semiannually. They expect inflation to be 4, per year for the next 5 years. Ignore taxes, and answer the following, rounding answers to the nearest dollar at each step. (Question 1-3) 1. Find the
future value of the chain after 5 years. Then find the price they should sell the chain for if they wish to have the same future value at the end of 5 years.*
$4,053,386; $3,016,084
$3,016,084; $4,053,386
$4,016,084; $3,053,386
Other:
Find the future value of the chain if it grows at only 2% per year for 5 years. Then find the price they should ask for the chain given a 2% growth rate per year.*
$1,889,530; $2,539,384
$2,539,384; $1,889,530
$1,539,384; $2,889,530
Other:
What future value would the chain be worth if it grew at their expected rate of inflation? Find the price they should ask for the chain if it grows at the rate of inflation.*
$2,798,295; $2,082,133
$2,082,133; $2,798,295
$3,082,133; $2,798,295
Other:
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