1. Toni adds $ 3,000 to her savings on the first day of each year. Tim adds $ 3,
ID: 2663391 • Letter: 1
Question
1. Toni adds $ 3,000 to her savings on the first day of each year. Tim adds $ 3,000 to his saving on the last day of each year. They both earn a 9% rate of return. What is the difference in their savings account balances at the end of third years?2. You are considering the following two mutually exclusive projects that will not be repeated. The required rate of return is 11.25% for project A and 10.75% for project B. Which project should you accept and Why?
Year project A project
0 -48,000 -126,900
1 18,400 69,700
2 31,300 80,900
3 11,700 0
2. 3. Jessica boutique has cash of $50 account receivable of $60, accounts payable of $200, and inventory of $150. What is the value of the quick ratio?
3.
4. 4. You just won the lottery! As your prize you will receive $12,00 a month for 100 months. If you can earn 8% on your money, what is this prize worth to you today?
Explanation / Answer
Toni has 3000*(1.09)^3 +3000(1.09)^2 +3000(1.09)= 3885.09 +3564.30+ 3270= 10719.39. Tim has 3000(1.09)^2 +3000(1.09)^2 +3000= 3564.30+3270+3000= 9834.30 So the difference is 885.09. If you compute the NPV of A you get 1862.57 Computation is -48000 + 18400/(1.125) +31300/(1.125)^2 +11700/(1.125)^3 If you compute the NPV of B you get 1991.56. So you should choose B since it has the higher NPV. Quick ratio is (50+60)/200= 0.55. I assume this is $1,200. Putting this in a financial calculator with 100 periods and 8/12= 0.75% per period we get 84,209.55 as the amount it is worth today.
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