Answer: $80 million per year for 25 years
Explanation:
The option you should choose is one that will guarantee you the highest present value.
This means that you need to discount the annual payment of $80 million per year for 25 years to find the present value. As you did not include a rate, we shall assume a rate of 8% for reference purposes.
The annual payment is an annuity so the present value can be calculated by:
Present value of annuity = Annuity payment * Present value interest factor, rate, no. of years
= 80,000,000 * Present value interest factor, 8%, 25 years
= 80,000,000 * 10.6748
= $853,984,000
<em>The present value of the annual payment is more than the present value of the $850 million received today so the Annual payment should be taken. </em>
The duration gap is calculated by subtracting the duration of the liabilities from the duration of the activity of the financial entities. Thus, in this case, the net worth of 1.8 percent of its assets.
<h3>What do you mean by Duration Gap?</h3>
Duration Gap refers to the term used by funds, banks, pensions, or many financial institutions to estimate the risk because of changed interest rates.
Also, if we have a negative duration gap means that the market value of equity will increase when interest rates rise.
Thus, in this case, If interest rates increase from 9 percent to 10 percent, a bank with a duration gap of 2 years would experience a decrease in its net worth of 1.8 percent of its assets.
Learn more about Duration gap here:
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Answer: $55,000
Explanation:
From the question, we are told that in the Freyfogle Company, land decreased $75,000 because of a cash sale for $75,000, and the equipment account increased $20,000 due to a cash purchase, while the bonds payable increased $70,000 from an issuance for cash at face value.
The net cash provided by investing activities shows the amount of money that has been spent for investment purposes at a specific period.
Sales of land = $75,000
Less: Equipment purchase= $20,000
Therefore, the net cash provided by investing activities will be:
= $75,000 - $20,000
= $55,000
Answer:
$1,729,098
Explanation:
Given that,
EBIT = $377,000
No debt.
Cost of equity = 13.3 percent
Tax rate = 39 percent
Value of issuing bonds at par = $2.7 million
Coupon rate = 6.5%
Therefore,
Unlevered value of the firm:
= [EBIT × (1 - Tax rate)] ÷ Cost of equity
= [$377,000 × (1 - 0.39)] ÷ 0.133
= $229,970 ÷ 0.133
= $1,729,098
