Explore BrainMass
Share

# Present Value, Future Value questions

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

1. Raybac is about to go public. Its present stockholders own 5000,000 shares. The new public issue will represent 800,000 shares. The shares will be priced at \$25 to the public with a 4% spread. The out-of-pocket costs will be \$450,000. What are the net proceeds to the firm?
\$18,750,000
\$19,200,000
\$18,250,000
\$19,550,000

2. Dr. Jones wants to buy a Dell computer, which will cost \$2,788 four years from today. He would like to set aside an equal amount at the end of each year, in order to accumulate the amount needed. He can earn 7% annual return. How much should he set aside?
\$697.00
\$627.93
\$823.15
\$531.81

3. Mr. Smith just invested \$20,000 for his 7 year old son. The money will be used for the son's education in 10 years, which he estimates will cost \$70,000. What rate of return will Mr. Smith need, in order to meet this goal?
Between 12% and 13%
Between 13% and 14%
Between 14% and 15%
Between 15% and 16%

4. Carol Thomas will deposit \$2,000 today. It will grow for 6 years, at 10% interest, compounded semiannually. She will then withdraw the funds, annually over the next 4 years. The annual interest rate is 8%. Her annual withdrawal will be ______.
\$2,340
\$4,332
\$797
\$1,085

5. To save for her newborn son's college education, Leas Wilson will invest \$1,000 at the beginning of each year for the next 18 years the interest rate is 12%. What is the future value?
\$30,690
\$34,931
\$63,440
\$55,750

6. A firm has \$1,000,000 in its common stock account and \$2,500,000 in its paid-in capital account. The firm issued 100, shares of common stock. What was the original issue price, if only one stock issue has ever been sold?
\$35 per share
\$30 per share
\$25 per share
\$10 per share

7. Maxwell Corporation is coming to the market with a new offering of 3000,000 shares of stock at \$25 to the public. Maxwell will receive \$22 per share. The firm has 1 million shares outstanding and earnings of \$6 million. What is the amount of dilution in earnings per share?
\$2.00
\$1.38
\$1.77

8. No dilution occurs since new money is received by Maxwell.
Which investment has the least amount of risk?
Standard deviation = \$500, expected return = \$5000
Standard deviation = \$700, expected return = \$500
Standard deviation = \$900, expected return = \$800
Standard deviation = \$400, expected return = \$350

#### Solution Preview

1. Raybac is about to go public. Its present stockholders own 5000,000 shares. The new public issue will represent 800,000 shares. The shares will be priced at \$25 to the public with a 4% spread. The out-of-pocket costs will be \$450,000. What are the net proceeds to the firm?
\$18,750,000
\$19,200,000
\$18,250,000
\$19,550,000

The spread is 4%. The net proceeds per share are 25X.96 = \$24. Number of shares issued are 800,000.
Total amount received is 800,000X24-450,000 = 1,875,000

2. Dr. Jones wants to buy a Dell computer, which will cost \$2,788 four years from today. He would like to set aside an equal amount at the end of each year, in order to accumulate the amount needed. He can earn 7% annual return. How much should he set aside?
\$697.00
\$627.93
\$823.15
\$531.81

We have to find the annnuity amount that would grow to \$2,788 in 4 years at 7%. Use the PMT function in excel to calculate the annuity. It comes to 627.93

3. Mr. Smith just ...

#### Solution Summary

The solution explains how to calculate the present value and future value of amounts and annuity

\$2.19