Need solutions for Questions...In the book by of Block and Hirt 2008. (Foundations of Financial management). 12th edition. Below are the questions...needed with in 2 days please! There are 4 Questions. All of the info is listed below and I need to see all work that was done to find the solutions. THANKS!
Comprehensive Problem Chapter 9 P.281
Mr. Rambo, President of Assault Weapons, inc. was pleased to hear that he had three offers from major defense companies for his latest missile firing automatic ejector. He will use a discount rate of 12% to evaluate each offer.
Offer I - $500,000 now plus $120,000 from the end of year 6 through 15. Also, if the product goes over $50 million in cumulative sales by the end of year 15, he will receive an additional $1,500,000. Rambo thought there was a 75% probability this would happen.
Offer II - 25% of the buyer's gross margin for the next 4 years. The buyer on this case is Air Defense, Inc. (ADI). Its gross margin is 65 percent. Sales for year 1 are projected to be $1 million and then grow by 40% per year. This amount is paid today and is not discounted.
Offer III - A trust fund would be set up for the next nine years. At the end if that period, Rambo would receive the proceeds (and discount them back to the present at 12%). The trust funs called for semiannual payments for the next 9 years of $80,000 (a total of $160,000 per year). The payments would start immediately. Since the payments are coming at the beginning of each period instead of the end, this is an annuity due. To look up the future value of the annuity due in the tables, add 1 to n (18 +1) and subtract 1 from the value in the table. Assume the annual interest rate on this annuity is 12% annually (6% semiannually). Determine the present value of the trust fund's final value.
Required: Find the present value of each of the three offers and then indicate which one has the highest present value. You must show your work and show the tables.
Chapter 10 #1 P.306
The Lone Star Company has $1,000 per value bonds outstanding at 9% interest. The bond will mature in 20 years. Compute the current price of the bonds if the present yield to maturity is:
SHOW YOUR WORK.
Chapter 10 #6 P. 306/307
The Hartford Telephone Company has a $1,000 par value bond outstanding that pays 11% annual interest. The current yield to maturity on such bonds in the market is 14%. Compute the price of the bonds for these maturity dates:
- a. 30 years
- b. 15 years
- c. 1 year
SHOW YOUR WORK
Chapter 11 #5 P. 350
The Goodsmith Charitable Foundation, which is tax exempt, issues debt last year at 8% to help Finance a new playground facility in Los Angeles. This year the cost of debt is 20% higher: that is, firms that paid 10%for debt last year will be paying 12% this year.
- a. If the Goodsmith Charitable Foundation borrowed money this year, what would the after tax cost of debt be, based on their cost last year and the 20% increase?
- b. If the receipts of the foundations were found to be taxable by the IRS (at a rate of 35% because of involvement in political activities), what would the after tax cost of the debt be?