Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 24P
a.
Summary Introduction
To calculate: The
Introduction:
Present value (PV):
The current value of an investment or an asset is termed as its PV. It is calculated by discounting the
When payments are made or received in series in equivalent intervals, they are termed as an annuity. Such payments can be made weekly, monthly, quarterly, or annually.
b.
Summary Introduction
To calculate: The present value of Mr. Moore’s deferred
Introduction:
Present value (PV):
The current value of an investment or an asset is termed as its PV. It is calculated by discounting the future value of the investment or asset.
Deferred Annuity:
A contract that helps an investor delay their incomes from receiving it until their desirable time for receiving the income comes, is termed as a deferred annuity. It is divided into two phases; first is the saving phase in which an investor only invests the money in the account and second is the income phase in which the investors start getting the payments. It can be fixed or variable.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
please solve this problem with MS EXCEL
Gilles Lebouder
has just been offered a job at
$50,000 a year. He anticipates his salary will
increase by 5% a year until his retirement in 40
years.
Given an interest rate of 8%, what is the present
value of his lifetime salary?
As the top employer at your firm you are given the following choices as your end of year bonus: (assume that you will remain in that firm for 20 years)
Choice A: $30,0000/year as long as you remain an employee there
Choice B: $1 first year, with each subsequent double of the previous
a) you should choose A if the risk-free rate is 0%
b) you should choose B if the risk-free rate is over 10%
c) at what interest rate would you be equally happy with the two options?
Chapter 9 Solutions
Foundations of Financial Management
Ch. 9 - Prob. 1DQCh. 9 - How is the present value of a single sum related...Ch. 9 - Prob. 3DQCh. 9 - Does inflation have anything to do with making a...Ch. 9 - Adjust the annual formula for a future value of a...Ch. 9 - If, as an investor, you had a choice of daily,...Ch. 9 - What is a deferred annuity? (LO9-4)Ch. 9 - Prob. 8DQCh. 9 - Prob. 1PCh. 9 - Prob. 2P
Ch. 9 - a. What is the present value of $140,000 to be...Ch. 9 - If you invest $9,000 today, how much will you have...Ch. 9 - Prob. 6PCh. 9 - Your uncle offers you a choice of $105,000 in 10...Ch. 9 - Your father offers you a choice of $105,000 in 12...Ch. 9 - Prob. 9PCh. 9 - How much would you have to invest today to receive...Ch. 9 - If you invest $8,500 per period for the following...Ch. 9 - Prob. 12PCh. 9 - Mrs. Crawford will receive $7,600 a year for the...Ch. 9 - Phil Goode will receive $175,000 in 50 years. His...Ch. 9 - Sherwin Williams will receive $18,500 a year for...Ch. 9 - Carrie Tune will receive $19,500 for the next 20...Ch. 9 - The Clearinghouse Sweepstakes has just informed...Ch. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - At a growth (interest) rate of 10 percent...Ch. 9 - Prob. 22PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Juan Garza invested $20,000 10 years ago at 12...Ch. 9 - Prob. 26PCh. 9 - Prob. 27PCh. 9 - Prob. 28PCh. 9 - Prob. 29PCh. 9 - You need $28,974 at the end of 10 years, and your...Ch. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 33PCh. 9 - Prob. 34PCh. 9 - Prob. 35PCh. 9 - Prob. 36PCh. 9 - Prob. 37PCh. 9 - Del Monty will receive the following payments at...Ch. 9 - Prob. 39PCh. 9 - Prob. 40PCh. 9 - Prob. 41PCh. 9 - Prob. 42PCh. 9 - Prob. 43PCh. 9 - Prob. 44PCh. 9 - Prob. 45PCh. 9 - Your younger sister, Linda, will start college in...
Knowledge Booster
Similar questions
- Your employer will give you a raise in an annual salary of $10,000 if you pass a Professional Engineering exam. Assume that you can work for the company for n years. Use the discount rate (r) of 8% per year. a. What is PV of the raise for n = 35? b. What is AE of the raise? c. Redo part a for n = ∞.arrow_forwardA 25-year old engineer wants to spend $40,000 per year traveling as long as possible before switching to saving for retirement. The engineer plans to retire at 60 with $1.5 million and then resume traveling. The engineer expects to earn 8% annually on the investment. (a) For how many years must the engineer save for retirement? (b) How long can the engineer travel before beginning to save for retirement?arrow_forwardI’m so confused and my head hurtsarrow_forward
- You have two job offers with the following 6-year compensation terms: the first one offers you $80,000 a year for 6 years; the other one offers you a signing bonus of $15,000 plus $50,000 a year for the first 4 years and then 60,000 a year for the last two years. Assume that the appropriate discount rate is 12% and there are no taxes. a. How much would you lose in present value if you accepted the second offer? b. Propose a change to the second offer that would make you indifferent between the two offers.arrow_forwardCongratulations, you have just been employed! You now have a choice between a flat benefit at retirement equal to $4,000 times your years of service, or a career average formula of 3.50% of your average salary times your years of service. You expect to work 40 years. At what average salary would you be indifferent between the two alternatives? O $160,000 O $145,444 O $114,286 O $101,104 O $88,889arrow_forwardPhil has two periods of work remaining prior to retirement. He is currently employed in a firm that pays him the value of his marginal product, $50,000 per period. There are many other firms that Phil could potentially work for. There is a 50 percent chance of Phil being a good match for any particular firm and a 50 percent chance of him being a bad match. If he is in a good match, the value of his marginal product is $56,000 per period. If he is in a bad match, the value of his marginal product is $40,000 per period. If Phil quits his job, he can immediately find employment with any of the alternative firms. It takes one period to discover whether Phil is a good or a bad match with a particular firm. In that first period, while Phil’s value to the firm is uncertain, he is offered a wage of $48,000. After the value of the match is determined, Phil is offered a wage equal to the value of his marginal product in that firm. When offered that wage, Phil is free to (a) accept, (b) reject…arrow_forward
- You can buy a piece of vacant land for $40,000 cash. You plan to hold it for 20 years and then sell it at a profit. During this period, you would pay annual property taxes of $815. You would have no income from the property. (a) Assuming that you want an 8% rate of return, at what net price would you have to sell the land 20 years hence? (b) What is open space conservation and why is it important? What options would you have in selling your property with this in mind?arrow_forwardToday, you retire with $1,100,000 and you want to ensure that you can withdraw $1250 per week (52 weeks per year) and plan to earn a 4% rate of return. How many weeks will your original $1,100,000 last?arrow_forwardProfessor Wendy Smith has been offered the following deal: A law firm would like to retain her for an upfront payment of $50,000. In return, for the next year, the firm would have access to 8 hours of her time every month. Smith's rate is $550 per hour, and her opportunity cost of capital is 15% (equivalent annual rate, EAR). What is the IRR (annual)? What does the IRR rule advise regarding this opportunity? What is the NPV? What does the NPV rule say about this opportunity? The IRR (annual) is %. (Round to two decimal places.)arrow_forward
- Suppose you have just started 26th year of your life, you plan to retire at the end of age 65, and you expect to live until the end of 85 (working for 40 full years and being retired for 20 years). You are currently earning $48,000 per year (paid monthly at the end of each month) which grows 2.4% each year (0.2% per month). You want to consume $2,500 per month when you retire with the growth rate of 0.2% per month. The plan is to save a fixed percentage of your income each month to meet your retirement needs. Part A: Assuming an interest rate of 3% (annual percentage rate, compounded monthly), what is your saving rate? Part B: Assuming an interest rate of 6% (annual percentage rate, compounded monthly), what is your saving rate? Part C: How can you explain the change in saving rate in response to the change in interest rate? Discuss.arrow_forwardTo prevent him from taking a job elsewhere, the University of Tennessee offers head coachJosh Heupel a new contract that makes annual, end-of-year payments. His first year’s salarywill be $5 million. To keep up with market conditions, his annual salary will increase by 2%per year in subsequent years. After receiving the 20th of these growing payments, he willretire and be paid a constant year-end amount of $1 million per year for 30 additional years.If the appropriate discount rate is 10%, what is the present value of this new contract?arrow_forwardThe X Company is considering purchasing a business machine for $100,000. An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all repairs and services. If the machine is purchased, a comparable repair and service contract can be obtainedfor $1,000 per year. The salesperson of the business machine firm has indicated that the expected useful service life of this machine is five years, with zero market value, but the company is not sure how long the machine will be needed. If the machine is rented, the company can cancel the lease at the end of any year. Assuming an income tax rate of 25%, a straight-line depreciation charge of $20,000 for each year the machine is kept, and an after-tax MARR of 10%, prepare an appropriate analysis to help the firm decide whether it is more desirable to purchase or rent.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT