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Present Value, Future Value questions

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