A) A wealthy parent is trying to fund a trust fund for his oldest son. The paren

Question

A) A wealthy parent is trying to fund a trust fund for his oldest son. The parent has set aside $442,400.00 today in an account that pays 6.00% annual interest. His oldest son will begin receiving the trust in 17.00 years, and the trust is set up to pay 15.00 identical annual payments. What will be the yearly withdrawal for the son from the trust? Round to 2 decimal places.

B) A successful businessman is selling one of his fast food franchises to a close friend. He is selling the business today for $2,143,000.00. However, his friend is short on capital and would like to delay payment on the business. After negotiation, they agree to delay 5.00 years before the first payment. At that point, the friend will make quarterly payments for 14.00 years. The deal calls for a 6.48% APR “loan” rate with quarterly compounding. What quarterly payment will the friend make on the loan? Round to 2 decimal places.

C) A loan shark offers $9,874.00 today in exchange for paying him $1,735.00 per year forever. What is the annual rate of interest on this “loan”? Round percent to 2 decimal places or decimal format to 4 decimal places.

D) An ambitious young graduate wants to purchase a BMW SUV in four years. The cost in four years will likely be $85,518.00. The graduate will try to save the entire price of the car and pay cash to the dealer. To save the money, the young graduate will save $10,839.00 per year. The graduate can earn 8.00% APR on his investments. How much MORE money will the graduate need in four years to buy his dream car? Round to 2 decimal places.

E) As an entrepreneur, you approach a venture capitalist seeking cash for funding your business. He does not want any equity in your firm, but instead he wants a yearly royalty forever. He wants a 9.00% royalty on your yearly revenues after the deal. You project to generate annual revenues of $121,100.00. The venture capitalist wants a 27.00% return on all his investments. What is the yearly cash flow from this deal for the venture capitalist? Round to 2 decimal places.

PLEASE ANSWER ALL PARTS!!!!

Explanation / Answer

(A) Trust Account Value today (at t=0) = $ 442400, Account Interest Rate = 6 % per annum.

The oldest son starts receiving the trust fund after 17 years which essentially implies that the first of the 15 identical annual payments is received at t=17 followed by 14 similar such annual payments.

Let the equal annual trust payments (annual trust withdrawals) be $ K

Trust Account Value at t= 17 will be 442400 x (1.06)^(17) = $ 1191282.68

The 15 equal annual trust withdrawals should have a total PV (at t = 17) equal to the trust account value at that time.

Therefore, 1191282.68 = K + K x (1/0.06) x [1-{1/(1.06)^(14)}]

K = $ 115714.86

NOTE: Please raise separate queries for solutions to the remaining unrelated questions.

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