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    Yesika Padilla 220724 - Homework - Problem Set Submission

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    Yesika Padilla
    This document provides the problems and solutions for a homework assignment on Chapter 7. It includes 4 problems: 1) Calculating the annual growth rate of earnings per share for Microsoft from 2006 to 2016. The rate is 5.74%. 2) Calculating the balloon payment amount after a 6-year car loan for a Tesla at 5% APR with monthly payments. The balloon payment is $47,298.92. 3) Determining the maximum amount over the $800 already spent that should be spent to ensure a sale with a $1,000 commission. The maximum is $1600. 4) Analyzing investment opportunities with different capital constraints and determining the optimal investments.

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    Yesika Padilla 220724 - Homework - Problem Set Submission

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    Yesika Padilla
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    This document provides the problems and solutions for a homework assignment on Chapter 7. It includes 4 problems: 1) Calculating the annual growth rate of earnings per share for Microsoft from 2006 to 2016. The rate is 5.74%. 2) Calculating the balloon payment amount after a 6-year car loan for a Tesla at 5% APR with monthly payments. The balloon payment is $47,298.92. 3) Determining the maximum amount over the $800 already spent that should be spent to ensure a sale with a $1,000 commission. The maximum is $1600. 4) Analyzing investment opportunities with different capital constraints and determining the optimal investments.

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    Yesika Padilla 220724 - Homework_ Problem Set Submission

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    This document provides the problems and solutions for a homework assignment on Chapter 7. It includes 4 problems: 1) Calculating the annual growth rate of earnings per share for Microsoft from 2006 to 2016. The rate is 5.74%. 2) Calculating the balloon payment amount after a 6-year car loan for a Tesla at 5% APR with monthly payments. The balloon payment is $47,298.92. 3) Determining the maximum amount over the $800 already spent that should be spent to ensure a sale with a $1,000 commission. The maximum is $1600. 4) Analyzing investment opportunities with different capital constraints and determining the optimal investments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    34 views2 pages

    Yesika Padilla 220724 - Homework - Problem Set Submission

    Uploaded by

    Yesika Padilla
    This document provides the problems and solutions for a homework assignment on Chapter 7. It includes 4 problems: 1) Calculating the annual growth rate of earnings per share for Microsoft from 2006 to 2016. The rate is 5.74%. 2) Calculating the balloon payment amount after a 6-year car loan for a Tesla at 5% APR with monthly payments. The balloon payment is $47,298.92. 3) Determining the maximum amount over the $800 already spent that should be spent to ensure a sale with a $1,000 commission. The maximum is $1600. 4) Analyzing investment opportunities with different capital constraints and determining the optimal investments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    220724 - Homework: Problem Set Submission

    Ch. 7 - Please complete problems 2, 4, 6 and 10. Submit online.


    1. Problem 2: Microsoft Corp. reported earnings per share of $1.20 in 2006 and
    $2.10 in 2016. At what annual rate did earnings per share grow over this period?

    ➔ Answer: Annual Rate = (Last Year EPS/ Initial Year EPS)^((1/N)+1)*100%


    = (2.10/1.20)^((1/10)+1)*100
    = 5.74%
    Over this period the annual annual rate per share grow is 5.74
    2. Problem 4: You are looking to purchase a Tesla Model X sport utility
    vehicle. The price of the vehicle is $93,500. You negotiate a six-year loan,
    with no money down and no monthly payments during the first year. After
    the first year, you will pay $1,300 per month for the following five years,
    with a balloon payment at the end to cover the remaining principal on the
    loan. The APR on the loan with monthly compounding is 5 percent. What
    will be the amount of the balloon payment six years from now?

    ➔ Answer: Balloon payment


    The APR on the loan with the monthly compounding is 5 percent, Therefore,
    the total amount that is due on the sixth year is computed as follows:
    = (Price Vehicle * 1+ (monthly interest rate)^n
    = (93.500*(1+0.05)^6
    = 125.298,942
    For five years, you will pay 1.300 per month. This is equivalent to 60 months
    Therefore the amount paid is 78.000
    Therefore the amount of the balloon payment six years from now is
    = 125.298,942 - 78000
    = 47.298,942
    3. Problem 6: You are selling a product on commission, at the rate of $1,000
    per sale. To date, you have spent $800 promoting a particular prospective
    sale. You are confident you can complete this sale with an added
    expenditure of some undetermined amount. What is the maximum amount,
    over and above what you have already spent, that you should be willing to
    spend to assure the sale?

    ➔ Answer: The maximum over and above what I've have already spent and
    should be to assure the sale is 1600. Increasing the sunk cost of the
    promotion to assure at least one sale could improve the current spent- 800
    dollars to 600 which is a less loss for the product.
    4. Problem 10: This problem tests your understanding of the chapter
    appendix. A com- pany is considering the following investment
    opportunities.

    a. If the company can raise large amounts of money at an annual cost of 15


    percent, and if the investments are independent of one another, which should it
    undertake?
    ➔ Answer: Undertake investment C because because it has the highest IRR
    b. If the company can raise large amounts of money at an annual cost of 15
    percent, and if the investments are mutually exclusive, which should it
    undertake?
    ➔ Answer: Undertake investment A because it has the highest NPV, and NPV
    is a direct measure of the increase in wealth from undertaking the investment
    c. Considering only these three investments, if the company has a fixed capital
    budget of $5.5 million, and if the investments are independent of one another,
    which should it undertake?
    ➔ Answer: If the capital budget is fixed at $5.5 million, invest in C and B, and
    put the remaining $500,000 in A if possible. This is the bundle of
    investments with the highest total NPV. One can select this bundle by
    ranking investments by their IRR, or occasionally more accurately by their PI
    (or Benefit Cost Ratio or BCR)

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