Ten years ago, you invested $5,000 in IBM stock, which grew at an annual rate of

Question

Ten years ago, you invested $5,000 in IBM stock, which grew at an annual rate of 13% during that time. You wish to withdraw the money today and invest in Google stock, which is expected to earn 15% per year for the next ten years. How much money will you have 10 years from now?

Question 14 options:

$68,664.60

$23,152.36

$61,895.23

$126,351.22

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Question 15 (1 point)

You own a business which generates $150,000 in profit per year. Someone has offered to buy it from you. Based on a 4-year projection and a belief that you could earn 10% annually if you had the money today, how much do you believe the business is worth today?

Question 15 options:

$660,000.00

$355,320.91

$600,000.00

$475,479.82

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Question 16 (1 point)

You wish to have $2,500,000 by the age of 65 (35 years from now). If you can earn 11% interest on your investments, how much do you need to save per month, in order to achieve your goal?

Question 16 options:

$755.89

$507.27

$60,906.00

$1,265.09

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Question 17 (1 point)

Your goal is to have $1,500,000, 30 years from now. If you already have $50,000 invested and can earn 10% per year, how much more do you need to save per month in order to reach your goal?

Question 17 options:

$987.52

There is no solution to this problem

$585.90

$224.79

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Question 18 (1 point)

You inherit $100,000 from a rich uncle today and invest it all in a mutual fund yielding 9% per year. If you add an additional $5,000 per year to the mutual fund, how much will your total investment be worth in 35 years?

Question 18 options:

$2,311,098.12

$1,579,087.77

$1,783,845.32

$3,119,950.57

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Question 19 (1 point)

A significant flaw in the payback method of capital budgeting is that____________

Question 19 options:

it assumes future cash flows are reinvested at the IRR.

it ignores cash flows following the payback period.

it is calculated using arithmetic average instead of weighted moving average.

it only calculates present values prior to comparing them to investment amount.

A)

$68,664.60

B)

$23,152.36

C)

$61,895.23

D)

$126,351.22

Explanation / Answer

Solution : Note as per policy one question need to be solved but here I know others so solving them. [14] Value of IBM stock today = 5000 * (1.13)^10 = 5000 * 3.39457 = 16972.85 As Fv = Pv * (1+i)^t Now investment in google stock so value at 10 year from now = 16972.85 * (1.15)^10 = 16972.85 * 4.045558 = 68664.6 Option A is correct [15] Answer is Option (D) $475,479.82 Annual Cash Flow =$150,000 Annuity Factor for 4 years at 10% = 3.169865 Present Value of Future cash flows = $150,000 X3.169865 = $475,479.82 [16] Answer Option (B) $507.27 Future value Calculation Future Value = Monthly Paymnet [(1+r)n  -1] / r Future Va;lue =$2,500,000 r = 11% /12 =0.9167% =0.009167 n= 35 years =35*12= 420 months Future value = P [ (1+0.9167%)420   -1] /0.009167 2500,000 = P [ (1.009167)420   -1 ] /0.009167 P = 2500,000 / [ (46.1825 -1)/0.009167] =2500000/{45.1825/0.009167} = $507.27 [17] Future value of $50000 in 30 years = 50000*(1+R)^30 Future value of $50000 in 30 years = 50000*(1+10%)^30 = $872471.11 Now, Remaining funds to be achieved in 30 year time = 1500000 - 872470.11 Remaining funds to be achieved in 30 year time = $627529.89 Let, monthly savings = P Monthly interest rate r = 10%/12 = .833% Time = 12*30 = 360 months Thus, Future value of monthly savings = 627529.89 = P*((1+r)^360 - 1)/r 627529.89 = P*(1.008333^360 – 1)/.00833 = P*2261.109 P = 627529.89 / 2261.109 P = $277.54 Thus, monthly deposit of $277.54 needs to be done to achieve $1500000 in 30 years of time with support of $50000 already deposited and earning 10% per year. NOT SURE FOR THIS ANSWER. [18] formula : M = P ( 1 + r)^n + Yearly installment ( 1 + r )^n - 1 / r Total Maturity after 35 years = 100000 (1 + 0.09)^35 + $5000 * (1 + 0.09)^35 - 1 / 0.09 3119951 = $2041397 + $1078554 = $3,119,951 (option D) [19] it ignores cash flows following the payback period. oprion B is correct.

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