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    If Mr. Moore's opportunity cost is 10% what is the present value of his consulting contract?

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    Les Moore retired as president of GoodmanSnack Foods company but is currently on a consulting contract for $35,000 per year for the next 10 years.

    If Mr. Moore's opportunity cost is 10% what is the present value of his consulting contract?

    Assuming Mr. Moore will not retire for two more years and will not start to receive his 10 payments until the end of the third year, what would be the value of his deferred annuity?

    2. Static Electronic Co. currently pays a $2.10 annual cash dividend. It plans to maintain the dividend at this level for teh foreseable future as no future growth is anticipated. If the required rate of return by common stockholders is 12 percent, what is the price of the common stock?

    Bioscience inc. will pay a common stock dividend of $3.20 at the end of the year. The required return on common stock is 14 percent. The firm has a constant growth rate of 9 percent. Compute the current price of the stock.

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    Solution Preview

    1.a. Les Moore retired as president of GoodmanSnack Foods company but is

    currently on a consulting contract for $35,000 per year for the next 10 years.
    If Mr. Moore's opportunity cost is 10% what is the present value of his

    consulting contract?

    Annual payment = 35000
    n = 10
    Discount Rate = 10%
    FV = 0
    Thus, we compute PV = $215,059.85
    (by a financial calculator or EXCEL command ...

    Solution Summary

    Computations are completed with formula (no Excel or financial calculator).

    $2.19

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