[tluckie]

Sally will graduate from medical school in 5 years. Her grandmother has promised to give her $100,000 upon graduation as a reward for attaining her degree. Her grandmother also told her that she would be willing to give Sally $70,000 today instead of $1000,000 in 5 years. If the prevailing rate of interest is 6% would Sally rather wait for the $100,000 in 5 years or take the $70,000 today? Show work

[tluckie]

Company Q issues a 10 year $5,000,000 bond on 1/1/04. The coupon rate is 5%. Market rate of interest is 7%. Interest is paid annually on every 12\31.

Calcualte the annual interest that the bond would pay.
What is the value of the bond?
Is this bond sold at a discount or premium? Why?

[tluckie]

You are deciding whether to invest in a project that has a cash outflow today of $50,000 and a cash inflow over the next 5 years as follows.

Year 1 5,000
Year 2 8,000
Year 3 10,000
Year 4 18,000
Year 5 20,000

Assume that the prevailing interest rate is 4%

Calculate the payback
Calculate the net present value
Would you invest in the project? Why or why not?
Show work

[tluckie]

You wish to open a new shoe store at the Galleria. You will sell shoes at an average price of $25. The shoes cost you an average cost of $5 per pair. You anticpate that fixed costs for the first year will run $250,000.

a)How many pairs of shoes will you have to sell in the firt year of operation (round to whole pairs)?
b)How much total revenue does this result in for you?
c)If you want a profit of $90,000 for the first year, how many pairs of shoes must you sell?
d)What is the total revenue given the requirements in C?
Show work

[Curlyben]

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