percent in i = (01/PO) + g PO = D1/ (i-g) 4. Amortization a car with 4 year, $30
ID: 2814763 • Letter: P
Question
percent in i = (01/PO) + g PO = D1/ (i-g) 4. Amortization a car with 4 year, $30,000 (ordinary annuity) amortized loan with You would like to buy monthly payments. If your interest rate is 6%, what is your monthly payment? a. cyPyEnd or@smode (circle one % per Y112 FV 50,00 PMT-42516- Y b. How much interest yrould you pay in the first year of the loan? $1, 00 S. Risk and Shareholder Wealth Maximization Your company just paid a dividend of $4. Management of your company wants to expand with a new product line. This would cause your company's constant growth rate in earnings and dividends to rise from 8% to 10%. Currently, the require rate of return for your company is 15%. This expansion would cause the required rate of return to increase to 18%, due to additional risk. Would shareholders want management to make this change? (Hint, PO). Show calculations to support yoU YESNO answer for full credit. lo .0 obExplanation / Answer
1.
A.
End mode
N=4*12
I/Y=6%/12
PV=30000
FV=0
CPT PMT=704.55
B.
Total payment=12*704.55=8454.60
Loan outstanding at the end of 1st year:
PMT=-704.55
N=12
I/Y=6%/12
PV=30000
CPT FV=23159.31
Principal paid=30000-23159.31=6840.69
Interest paid=8454.60-6840.69=1613.91
2.
Before expansion, P0=4*1.08/(15%-8%)=61.71
After expansion, P0=4*1.10/(18%-10%)=55.00
No
As price decreases, shareholders wont want the expansion
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