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dimaraw [331]
3 years ago
12

A friend of Mr. Richards recently won a law suit for $30 million. They have the ability to either take the payments over 10 year

s or settle today for cash of $25 million today. Mr. Richard is optimistic that he can earn a 6% return on the money and that they should settle for $25 million today and he will invest it for them.
a. You'll will need to demonstrate the present value of the $30 million today versus the future value of the $25 million in 5 years to make your argument.

b. Briefly describe which settlement is maximizing the value for the client and explain why?
Business
1 answer:
denis23 [38]3 years ago
5 0

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

A friend of Mr. Richards recently won a law suit for $30 million. They can either take the payments over 10 years or settle today for cash of $25 million. Mr. Richard is optimistic that he can earn a 6% return on the money and that they should settle for $25 million today and he will invest it for them.

First, we need to find the present value of the 30 million.

To do that we need to calculate the final value.

FV= {A*[(1+i)^n-1]}/i

A= annual deposit

FV= {3,000,000*[(1.06^10)-1]}/0.06= 39,542,385

PV= FV/(1+i)^n= 39,542,385/1.06^10= 22,080,261

B) Now we know that the present value of option B is higher. One dollar today is better than one dollar tomorrow. It is better to receive the money now to invest it.

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posledela

Answer:

- $454

Explanation:

Net Operating Profit after tax = Net operating profit before tax - tax rate

                                                  = $1,800 - 20%

                                                  = $360

Economic Value Added:

= Net Operating Profit after tax - (Capital Invested × Weighted average cost of capital )

= $360 - [($8,500 - $1,100) × 11%]

= $360 - ($7,400 × 11%)

= $360 - $814

= - $454

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2 years ago
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8 0
3 years ago
Weston acquires a new office machine (7-year class asset) on August 2, 2017, for $75,000. This is the only asset Weston acquired
Arturiano [62]

Answer:

The total cost recovery for 2017 is $38,838.75 and The total recovery cost for 2018 is $6457.031

Explanation:

for 2017:

additional first year depreciation = $75,000*50%

                                                       = $37,500

using 7-year MACRS mid quater converntion, the depreciation % for quater 4 is 3.57%

additional MACRS cost recovery = ($75,000 - $37,500)*3.57%

                                                       = $1338.75

total cost recovery for 2017 = $37,500 + $1338.75

                                              = $38,838.75

for 2018, additional first year depreciation is $37,500

using 7-year MACRS mid quarter convention for next year, the depreciation % fpr quarter 4 is 27.55%

the machine sold in september , so it was used for two full quarters and half third quater

the recovery is computed for 2.5 over 4 quarters of a year

additional MARSC cost recovery = $37,500*27.55%*(2.5/4)

                                                       = $6457.031

total recovery cost for 2018 is $6457.031

Therefore, The total cost recovery for 2017 is $38,838.75 and The total recovery cost for 2018 is $6457.031

7 0
3 years ago
The substitution effect is the concept that if the price of x goes ________ , there will be an increase (shift right) to x away
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The answer is right, if not are there choices
5 0
3 years ago
A portfolio is consisted of two stocks:$1,000 in stock X and $3,500 in stock Y. The expected return on stock X is 12%, and 6% fo
oksano4ka [1.4K]

Answer:

Portfolio return = 7.3%

Explanation:

<em>The portfolio expected rate of return would be the weighted  average expected rate of return</em>

Weighted average expected rate of return=

12%× (1000/(3500+1000) + (3,500/(1000+3500)× 6%= 0.073333333

Expected rate of return = 0.073333333 × 100 = 7.3%

Portfolio return = 7.3%

6 0
3 years ago
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