Q1) Calculating Present Values For each of the following, compute the present va

Question

Q1) Calculating Present Values For each of the following, compute the present value:

Present Value

Interest Rate

Future Value

550,164

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Q2) The Perpetual Life Insurance Co is trying to sell you an investment policy that will pay you and your heirs $25,000 per year forever.if the required requird return on this investment is 6 percent, how will you pay forthe policy ? Suppose the Perpetual Life Insurance Co. told you the policy costs $435,000. At what interest rate would this be a fair deal?

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Q3 ) The most recent financial statements for Cornell, Inc. are shown here:

Income Statement

Balance Sheet

Assets and costs are porportional to sales. Debt and equity are not. A dividend of $1,623.60 was paid, and the company wishes to maintain a constant payout ratio. Next year's sales are projected to be $38,420 What is the external financing needed?

Present Value

Years

Interest Rate

Future Value

9 7% $15,451 6 9 51,557 21 14 886,073 27 16

550,164

Explanation / Answer

Q1)

Q2)

If the required return is 6% the amount to be paid for the policy = 25000/0.06 = $416.667

If the policy costs 435000, it would be a fair deal if the interest rate is 25000/435000 = 5.75%

Q3) EFN needed = $5,501

Present Value Years Interest Rate Future Value $8,404 9 7% $15,451 $30,742 6 9% 51,557 $56,555 21 14% 886,073 $10,003 27 16% 550,164

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