(Comprehensive problem) Over the past few years, Microsoft founder Bill Gates' net worth has fluctuated between $20 billion and in Microsoft from 21 percent to around 14 percent by moving billions into his charitable foundation. Let's see what Bill Gates can do with his money in the following problems a. Manhattan's native tribe sold Manhattan Island to Peter Minuit for $24 in 1626 Now, 387 years later in 2013, Bill Gates wants to buy the island from the "current natives How much would Bill have to pay for Manhattan if the "current natives" want a 6 percent annual return on the onginal $24 purchase price? b. Bill Gates decides to pass on Manhattan and instead plans to buy the city of Seattle, Washington, for $50 billion in 10 years How much would Bill have to invest today at 10 percent compounded annually in order to purchase Seattle in 10 years? c. Now assume Bill Gates only wants to invest half his net worth today, $13 billion, in order to buy Seattle for $50 billion in 10 years What annual rate of return would he have to earn in order to complete his purchase in 10 years? d. Instead of buying and running large cities, Bill Gates is considering quitting the rigors of the business world and retiring to work on his golf game To fund his retirement, Bill would invest his $20 billion fortune in safe investments with an expected annual rate of return of 7 percent. He also wants to make 40 equal annual withdrawals from this retirement fund beginning a year from today, running his retirement fund to $0 at the end of 40 years. How much can his annual withdrawal be in this case? a. The amount Bill would have to pay for Manhattan if the "current natives" wanted a 6 percent annual return on the original $24 purchase price after 387 years is $billion (Round to two decimal places) b. The amount Bill would have to invest at 10 percent compounded annually in order to purchase Seattle for $50 billion in 10 years is $billion. (Round to two decimal places.) c. If Bill Gates only wants to invest half his net worth today, $13 billion, in order to buy Seattle for $50 billion in 10 years, the annual rate of return he would have to earn in order to complete his purchase in 10 % (Round to two decimal places) years is d. If Bill invests his $20 billion fortune in safe investments with an expected annual rate of return of 7 percent and he also wants to make 40 equal annual withdrawals from this retirement fund beginning a the amount of his annual withdrawal in this case would be $ billion per year (Round to two decimal places) e

(Comprehensive problem) Over the past few years, Microsoft founder Bill Gates' net worth has fluctuated between $20 billion and in Microsoft from 21 percent to around 14 percent by moving billions into his charitable foundation. Let's see what Bill Gates can do with his money in the following problems a. Manhattan's native tribe sold Manhattan Island to Peter Minuit for $24 in 1626 Now, 387 years later in 2013, Bill Gates wants to buy the island from the "current natives How much would Bill have to pay for Manhattan if the "current natives" want a 6 percent annual return on the onginal $24 purchase price? b. Bill Gates decides to pass on Manhattan and instead plans to buy the city of Seattle, Washington, for $50 billion in 10 years How much would Bill have to invest today at 10 percent compounded annually in order to purchase Seattle in 10 years? c. Now assume Bill Gates only wants to invest half his net worth today, $13 billion, in order to buy Seattle for $50 billion in 10 years What annual rate of return would he have to earn in order to complete his purchase in 10 years? d. Instead of buying and running large cities, Bill Gates is considering quitting the rigors of the business world and retiring to work on his golf game To fund his retirement, Bill would invest his $20 billion fortune in safe investments with an expected annual rate of return of 7 percent. He also wants to make 40 equal annual withdrawals from this retirement fund beginning a year from today, running his retirement fund to $0 at the end of 40 years. How much can his annual withdrawal be in this case? a. The amount Bill would have to pay for Manhattan if the "current natives" wanted a 6 percent annual return on the original $24 purchase price after 387 years is $billion (Round to two decimal places) b. The amount Bill would have to invest at 10 percent compounded annually in order to purchase Seattle for $50 billion in 10 years is $billion. (Round to two decimal places.) c. If Bill Gates only wants to invest half his net worth today, $13 billion, in order to buy Seattle for $50 billion in 10 years, the annual rate of return he would have to earn in order to complete his purchase in 10 % (Round to two decimal places) years is d. If Bill invests his $20 billion fortune in safe investments with an expected annual rate of return of 7 percent and he also wants to make 40 equal annual withdrawals from this retirement fund beginning a the amount of his annual withdrawal in this case would be $ billion per year (Round to two decimal places) e

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section: Chapter Questions

Problem 1lM

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