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# Time value of money

I need to discuss the answers in class. Just wanted to double check my answers to be sure.

1. Polly Graham will receive \$12,000 a year for the next 15 years as a result of her patent. If a 9 percent rate is applied, should she be willing to sell out her future rights now for \$100,000?

2. The Clearinghouse Sweepstakes has just informed you that you have won \$1 million. The amount is to be paid out at the rate of \$20,000 a year for the next 50 years. With a discount rate of 10 percent, what is the present value of your winnings?

3. Juan Garza invested \$20,000 10 years ago at 12 percent, compounded quarterly. How much has he accumulated?

4. Exodus Limousine Company has \$1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 50 years. Compute the current price of the bonds if the percent yield to maturity is:

a. 5 percent.
b. 15 percent.

5. Venus Sportswear Corporation has preferred stock outstanding that pays an annual dividend of \$12. It has a price of \$110. What is the required rate of return (yield) on the preferred stock?

6. Static Electric Co. currently pays a \$2.10 annual cash dividend (D0). It plans to maintain the dividend at this level for the foreseeable future as no future growth is anticipated. If the required rate of return by common stockholders (Ke) is 12 percent, what is the price of the common stock?

7. Sullivan Cement Company can issue debt yielding 13 percent. The company is paying a 36 percent rate. What is the aftertax cost of debt?

8. You buy a new piece of equipment for \$16,980, and you receive a cash inflow of \$3,000 per year for 12 years. What is the internal rate of return?

#### Solution Summary

The solution explains various questions relating to time value of money

\$2.19