Problem Set Ii Mba/502
Answers as of 1.19.08 from professor
9-17. Jack Hammer invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. Also, he believes that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11 percent is applied? (Round all values to two places to the right of the decimal point.)
Solution:
Appendix B
PV = FVIF
Discount rate = 11%
$ 2.00 x .901 = $ 1.80
2.20 x .802 = 1.79
2.40 x .731 = 1.75
33.00 x .731 = 24.12
$29.46
9-22. Your rich godfather has offered you a choice of one of the three following alternatives: $10,000 now; $2,000 a year for eight years; or $24,000 at the end of eight years. Assuming you could earn 11 percent annually, which alternative should you choose? If you could earn 12 percent annually, would you still choose the same......
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