Bundle: Intermediate Financial Management, 13th + MindTap Finance, 1 term (6 months) Printed Access Card
Bundle: Intermediate Financial Management, 13th + MindTap Finance, 1 term (6 months) Printed Access Card
13th Edition
ISBN: 9781337817332
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 10, Problem 9MC
Summary Introduction

Case summary:

Person X is decided to start a company relating to software products which integrates a wide range of media devices like laptops, desktop computers, cell phones and digital video recorders. He has selected student body at his university as an initial market.

Once his plans are successful and he will decide to expand its business to other colleges and areas and eventually to go national wide. Later he will plan to go public issue with an IPO to buy a yacht. These points are kept in mind while deciding the potential investors of his company.

To discuss: Use of stock options in a compensation plan and some of the potential problems with stock options.

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You are considering an option to purchase or rent a single residential property. You can rent it for $5,000 per month and the owner would be responsible for maintenance, property insurance, and property taxes. Alternatively, you can purchase this property for $204,500 and finance it with an 80 percent mortgage loan at 4 percent interest that will fully amortize over a 30-year period. The loan can be prepaid at any time with no penalty. You have done research in the market area and found that (1) properties have historically appreciated at an annual rate of 2 percent per year, and rents on similar properties have also increased at 2 percent annually; (2) maintenance and insurance are currently $1,545.00 each per year and they have been increasing at a rate of 3 percent per year; (3) you are in a 24 percent marginal tax rate and plan to occupy the property as your principal residence for at least four years; (4) the capital gains exclusion would apply when you sell the property; (5)…
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