Chapter 4: Q9DQ (page 437)
What is the purpose of using simulation analysis?
The purpose is to study and analyze changes in variables like inflation, level of sales and economic policy.
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What are the basic benefits and purposes of developing pro forma statements and a cash budget?
Carrie Tune will receive \(19,500 for the next 20 years as a payment for a new song she has written. If a 10 percent rate is applied, should she be willing to sell out her future rights now for \)160,000?
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.)
Larry Davis borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years.
a.How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.)
b.How much interest will he pay over the life of the loan?
c.How much should he be willing to pay to get out of a 14 percent mortgage and into a 10 percent mortgage with 25 years remaining on the mortgage?
Assume current interest rates are 10 percent. Carefully consider the timeb value of money. Disregard taxes.
Christy Reed made a \(2,000 deposit in her savings account on her 21st birthday, and she has made another \)2,000 deposit on every birthday since then. Her account earns 7 percent compounded annually. How much will she have in the account after she makes the deposit on her 32nd birthday?
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