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Growth Rates, Future Value, Present Value, Amortization

Five questions: Please explain the answers.

2. Last year Toto Corporation's sales were $225 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later?

3. Ten years ago, Levin Inc. earned $0.50 per share. Its earnings this year were $2.20. What was the growth rate in Levin's earnings per share (EPS) over the 10-year period?

4. Your aunt is about to retire, and she wants to buy an annuity that will supplement her income by $65,000 per year for 25 years, beginning a year from today. The going rate on such annuities is 6.25%. How much would it cost her to buy such an annuity today?

5. Suppose you borrowed $12,000 at a rate of 9% and must repay it in 4 equal installments at the end of each of the next 4 years. How large would your payments be?

6. Suppose you borrowed $12,000 at a rate of 9% and must repay it in 4 equal installments at the end of each of the next 4 years. By how much would you reduce the amount you owe in the first year?

Solution Preview

Please find my response attached. The solutions are in black.

2. Last year Toto Corporation's sales were $225 million. If sales grow at 6% per year, how large (in millions) will they be 5 years later?
Use the following formula:
Sales in year t = Current Sales *(1+growth rate)^t
=> New Sales = 225*(1+.06)^5
=> New Sales = 225*(1.06)^5 = 301.1M

3. Ten years ago, Levin Inc. earned $0.50 per share. Its earnings this year were $2.20. What was the growth rate in Levin's earnings per share (EPS) over the 10-year period?
Use the following ...

Solution Summary

The solution answers the questions below.

$2.19