Finance 320 Final Exam

Poor Dog, Inc. borrowed $135,000 from the bank today. They must repay this money over the next six years by making monthly payments of $2,215.10. What is the interest rate on the loan? Express your answer with annual compounding.

It is agreed that in your explanation you will assume that corporations have a state-plus-federal income tax rate of 40 percent, and you will use the top personal tax rate of 39.6 percent.

2. PNB Industries has 20 million shares of common stock outstanding with a market price of $18.00 per share. The company also has outstanding preferred stock with a market value of 50 million, and $500,000 bonds outstanding, each with face value $1,000 and selling at 97% of par value. The cost of equity is 15%, the cost of preferred is 12% and the cost of debt is 8.50%. If PNB’s tax rate is 40%, what is the WACC?

7. Trevor's Tires is offering a set of 4 premium tires on sale for $550. The credit terms are 24 months at $20 per month. What is the interest rate on this offer?

Week 8 DQ 4Is the compound interest formula—such as would be used to calculate a car loan—an

a) Assuming the opportunity interest rate is 6%, what is the present value of the second alternative?

c) The present value of $500 to be received in one year when the opportunity cost rate is 8 percent (discounting):

4. (TCO C) Alan and Barbara are in the process of purchasing their first home. However, they cannot decide whether a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage is best for them. They have decided to finance $200,000 and can get the 15-year mortgage at 4.5% and the 30-year mortgage at 5%. (35 points total)

Net Income = 7,238,748/5,321,295 = $1.36/share (mainly from the one time gain on the bond exchange)

12. Today, you deposit $10,750 in a bank account that pays 3 percent simple interest. How much interest will you earn over the next 7 years?

After the calculations you end up coming out with a rate of 14.87%. The third and final part of question three asks what rate you will need if the interest is compounded semiannually. All you have to do is double the amount of terms and you will come out with a lower number of 7.177%. Since the interest is compounded semiannually that means that you will need to times that number by two and you come out with your final number of 14.35%.

2. If you had a payment that was due you in 5 years for $50,000 and you could earn a 5% rate of return, how much

2. (TCO C) Your company has been offered credit terms of 4/30, net 90 days. What will be the nominal annual percentage cost of its nonfree trade credit if it pays 120

(5 points) $100 invested for 10 years at 12% interest is worth more in FV terms than $200 invested for 10 years at 4% interest.

After this point you will continue to save the $2617 per year. Based on Jay Egg's professional calculations, you will save $31,855 over the course of 15 years over installing a new “High Efficiency” conventional system, and $9,885 without factoring the cost of a new high efficiency system. Another question homeowners generally ask is: Where do these costs come from? The majority of the costs of installing a closed loop subsoil geothermal system in your household come from the cost of drilling the bore holes and running the piping. Costs, which while not factored in to the above equation, may be reduced due to your specific location (Next to a large body of water, likely meaning the presence of an aquifer beneath the Earth below your house.) In your home, depending upon the presence of an aquifer or the ability to place piping into the lake, you may opt instead to use an open or closed loop system that runs either through the lake in pipes (closed loop) or into and out of an underground aquifer through two pipes, using free standing water as the heat exchange medium (open-loop system). The costs of these systems are typically less