Hi mkahn :)

John has just won the state lottery and has three award options from which to choose. He can elect to receive a lump sum payment

12345 [234]

Answer:

John should opt for the 30 annual end-of-the-year payments of $4 million as that gives the highest present of value of $49,636,164.73 as shown below.

Explanation:

The options are evaluated as follows:

Option 1 $46,000,0000 today

Option 2

The present of value of this option is calculated using the below formula:

Present value of annuity = ((1-(1/((1+i)^n))/i) X PMT

where i=rate=7%

n=10years

PMT=$7m

PV=((1-(1/((1+0.07)^10))/0.07) X 7000000

PV=$ 43,834,929.21

Option 3

The present value of this option using the formula in option 2 is:

PV=((1-(1/((1+0.07)^30))/0.07) X 4000000

PV=$49,636,164.73

Hence, the last option is preferable.

7 0

4 years ago

1 Madison Harris, the owner, invested $6,500 cash and $33,500 of photography equipment in the company in exchange for common sto

Sindrei [870]

Answer:

Part A:

August 1:

Cash $6,500

Photography equipment $$33,500

Madison Harris Capital $40,000

August 2:

Prepaid Insurance $2,100

Cash $2,100

August 5:

Office Supplies $880

Cash $880

August 20:

Cash $3,331

Photography fees earned $3,331

August 31:

Utilities expense $675

Cash $675

Total $46,986 $46,986

Part B:

Amount Debit($) Credit($)

Cash 6,176

Office Supplies 880

Prepaid Insurance 2,100

Photography Equipment 33,500

M.Harris Capital 40,000

Photography Fee earned 3,331

Utilities Expense 675

Total 43,331 43,331

Explanation:

Journal Entries:

It helps the company or firm to put all its transactions ion one sheet as debit and credit to keep track of its financial transactions. At the end total debit is equal to total credit.

Below are journal entries of above Transactions:

Amount Debit Credit

August 1:

Cash $6,500

Photography equipment $$33,500

Madison Harris Capital $40,000

August 2:

Prepaid Insurance $2,100

Cash $2,100

August 5:

Office Supplies $880

Cash $880

August 20:

Cash $3,331

Photography fees earned $3,331

August 31:

Utilities expense $675

Cash $675

Total $46,986 $46,986

Part B:

From Above Entries we can find the cash at the end:

Ending Cash=Total Debit Cash- Total Credit Cash

Ending Cash=(6,500+3,331)-(2,100+880+675)

Ending Cash=$6176

Preparing Trial Balance:

Amount Debit($) Credit($)

Cash 6,176

Office Supplies 880

Prepaid Insurance 2,100

Photography Equipment 33,500

M.Harris Capital 40,000

Photography Fee earned 3,331

Utilities Expense 675

Total 43,331 43,331

3 0

3 years ago

West Coast Ltd. wants to issue preferred stock that pays an annual dividend of $6.80 a share. The company has determined that st

egoroff_w [7]

Answer:

The offer price will be $55.51

Explanation:

The constant cash flow over a indefinite period of time is the perpetuity. The dividend payment on the preferred is also considered as perpetuity because it pays the constant amount of dividend and there is no time limit for the payment.

Value of the preferred share can be determine by following formula

Value of Perpetuity / Cash flow / required rate of return

Price of share = Dividend Payment / Rate of return

Price of share = $6.8 / 12.25% = $55.51

5 0

4 years ago

Cost of Debt KatyDid Clothes has a $150 million (face value) 30-year bond issue selling for 104 percent of par that carries a co

Ivahew [28]

Answer:

the annual pre-tax cost of debt is 10.56%

Explanation:

the beore-tax component cost of debt will be the actual market rate of the bonds, as they offer an interest rate of 11% but are selling at 104 points not at par thus, there is a difference between the rates.

We solve for the rate which makes the coupon and maturity 104

with excel or a financial calculator

PV of the coupon payment

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 5.500 (100 x 11%/2)

time 60 (30 years x 2 payment per year)

rate 0.052787474

$5.5 \times \frac{1-(1+0.0527874736258532)^{-60} }{0.0527874736258532} = PV\\$

PV $99.4338

PV of the maturity

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 100.00

time 60.00

rate 0.052787474

$\frac{100}{(1 + 0.0527874736258532)^{60} } = PV$

PV 4.57

Adding both we should get 104 which is the amount the bonds is selling:

PV coupon $99.4338 + PV maturity $4.5662 = $104.0000

The rate is generated using goal seek or wiht a financial calculator.

This rate is a semiannual rate, so we multiply by 2 to get the annual cost of debt:

0.052787474 x 2 = 0.105574947

The cost of debt for the firm is 10.56%

5 0

3 years ago

A potential loan customer wants to borrow $4 million to purchase and manage a strip mall with a pizza restaurant, crafts store,

Lena [83]

Answer:

The loan officer takes the following steps (not necessarily in this order) to assess the creditworthiness of the borrower:

- Run a credit report using any of the major credit reporting agencies like TransUnion, Experian or Equifax.

- Obtain accounts receivable aging reports.

- Check references.

- Conduct a gut check using creative investigative methods.

Explanation:

There are some factors that can affect creditworthiness or credit score such as: bill payment history, which comprises 35 percent of the total credit score and the most important factor in calculating credit scores, the level of debt, credit history age, types of credit on a report and number of credit inquiries, credit utilization, length of credit history. There are five “C's” to consider during a credit risk assessment: character, capacity, capital, condition, and collateral. Whether a sale is a domestic or international transaction.

The main factor lenders consider in determining a person's creditworthiness is investigation of a person's income, current debts, personal life, and past history of borrowing and repaying debts, capacity to pay, character, and any collateral you may have for loan guaranteed only by a promise to repay.

3 0

3 years ago