1) You are head of the Schwartz Family Endowment for the Arts. You ave decided to fund an arts school in the San Francisco Bay area in perpetuity. Every ﬁve years, you will give the school $1 million. The ﬁrst payment will occur ﬁve years from today. If interest rate is 8% per year, what is the present value of your gift?
PV=1 000 000/0,4693=2 130 833
2) You are thinking of building a new machine that will save you $1000 in the ﬁrst year. The machine will then begin to wear out so that the savings decline at a rate of 2% per year forever.
What is the present value of the savings if the interest rate is 5% per year? PV=1 000/0,05-(-0,02)=14 285,71
3) Company, is considering buying two alternative copy machines. Machine A will cost $50,000, have expenses (exc. Depreciation) of $34,000 per year, and have a useful life of six years. Machine B will cost $70,000, have a useful life of ﬁve years, and will have expenses (exc. Dep.) of $26,000 per year. Company uses straight-line dep. And pays taxes at the rate of 35%. The projects cost of capital is 13%. Net salvage value is zero for each machine at the end of its useful life. Assuming that the project for which the machines are to be used is very proﬁtable, which machine should be purchased.
4) The Kolari Corporation currently has the following ratios: Total asset tunrover = 1.6; Total debt to total assets = 0,5 current ratio = 1,7; Current liabilities = $ 2,000,000
A) If Kolari's sales are currently $ 16,000,000 what is the amount of total assets? TA = sales/total asset turnover
TA= 16,000,000 / 1,6
TA = 10,000,000
B) Of the total in (A) above, what amount is current assets? CA= current ratio* current liabilities
CA= 1,7 * 2,000,000
C)What is the total debt of the ﬁrm?
Debt ratio= total debt/total assets
TD= total assets*debt ratio
D) If Kolari's sales are expected to increase by $ 6,400,000 and existing ratios remain unchanged, what is the amount of...
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