Growth Rates, Future Value, Present Value, Amortization
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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?
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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 ...
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