Financial Management – Exam

1. Time value of money (15 points) You consume just turned 30 years old, collect just received your MBA and have accepted your scratch job. Now, you must root how much money to congeal in your retirement plan. The plan plays as follows. Every dollar in the plan earns 7% per year. You cannot make withdrawals until you retire on your 65th birthday. later on that point, you can make withdrawals as you see fit. You decide that you will plan to live to 100 and work until you turn 65. You estimate that to live comfortably in retirement, you will need $100,000 per year starting at the end of the first year of retirement and resultant on your 100th birthday.You will work the kindred amount to the plan at the end of any year that your work. How much do you need to contribute each year to fund your retirement? 2. filiation pricing (20 points) Colgate-Palmolive Co. has just paid an annual dividend of $0. 96. Analysts be predicting an 11% per year move aroundth cast in earnings ov er the next pentad years. afterwards that, Colgates earnings are expected to grow at the current industry average of 5. 2% per year. If Colgates equity cost of capital is 8. 5% per year and its dividend payout ratio remains constant, what scathe does the dividend-discount framework predict Colgate should sell for? 3.Bond pricing (15 points) Consider a 30-year bond with a 10% coupon footstep (annual payments) and a $1000 face value. 1. What is the initial price of this bond if it has a 5% yield to due date? (5 points) 2. What will the price be immediately forward and after the first coupon is paid (10 points) 4. NPV (25 points) A proposed cost savings eddy has an installed cost of $480,000. The maneuver will be depreciated straight- discover to zero over its five year life. The required initial net operative capital investment is $35,000 (which will be aged at the end of the stand), the marginal tax rate is 35%, and the discount rate is 12%.The device has an estimated year 5 salvage value of $80,000. What level of pretax cost savings do we require for this project to be profitable? 5. IRR (25 points) Your firm is contemplating the purchase of a new $850,000 computer based order immersion system. The system will be depreciated straight line to zero over its five-year life. It will be price $150,000 at the end of that time. You will save $350,000 out front taxes per year in order processing be and you will be able to reduce working(a) capital by $125,000. If the tax rate is 35%, what is the IRR for this project?