Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 3, Problem 4P
a)
Summary Introduction
To determine: Whether Person X chooses the stock or cash bonus and its values.
Introduction:
Additional number of shares the company issues to its shareholders without any cost is termed as bonus shares.
b)
Summary Introduction
To discuss: The value of the bonus shares and the decision of Person X.
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Suppose your employer offers you a choice between a $5,000 bonus and 100 shares of the company's stock. Whichever one you choose will be awarded today. The stock is currently trading at $63.00 per share.
a. If you receive the stock bonus and you are free to trade it, which form of the bonus should you choose? What is its value?
b. Suppose that if you receive the stock bonus, you are required to hold it for at least one year. What can you say about the value of the stock bonus now? What will your decision depend on?
a. Suppose that if you receive the stock bonus, you are free to trade it. Which form of the bonus should you choose? What is its value?
If you are free to trade the stock, the value of the stock bonus today is $ . (Round to the nearest dollar.)
The value of the cash bonus is $. (Round to the nearest dollar.)
Which bonus should you choose? (Select from the drop-down menu.)
You should choose the
b. Suppose that if you receive the stock bonus, you are required to hold it for at…
Suppose that you start working for a company at age 25. You are offered two rather unlikely, but
quite enticing, retirement plans from which you are allowed to choose one. [Round all answers to
the nearest dollar.]
Retirement plan 1: When you retire, you will receive $16,000 for each year of service.
Retirement plan 2: When you start work, the company deposits $2500 into a savings account that
is guaranteed to pay a yearly rate of 16%. When you retire, the account will be closed and the
balance given to you.
A. Determine the amount you would receive under plan 1, if you retired at age 55.
$
B. Determine the amount you would receive under plan 1, if you retired at age 65.
C. Determine the amount you would receive under plan 2, if you retired at age 55.
D. Determine the amount you would receive under plan 2, if you retired at age 65.
Suppose you have two job offers to consider for similar positions. Company A will pay a salary of $85,000 per year and offers the most common retirement plan 401(k) match, which is 50 cents for each dollar you contribute on up to 6% of your pay. Company B will pay a salary of $75,000 per year and offers a dollar-for-dollar match on up to 10% of your pay. Assume you spend 10 years working at the company, that salary and retirement contributions all occur monthly, and the average APR is 7%.
1. What are the balances on these two account options? Include both your contribution and the employers.
2. Explain which option you would take.
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Chapter 3 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
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