Order 709054: Introduction To Finance

  • Type of paper Coursework
  • Subject Finance
  • Number of pages 3
  • Format of citation Not Applicable
  • Number of cited resources  0
  • Type of service  Writing

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Homework

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Complete the following homework scenario:

 

Bob and Lisa are both married, working adults. They both plan for retirement and consider the $2,000 annual contribution a must.

 

First, consider Lisa’s savings. She began working at age 20 and began making an annual contribution of $2,000 at the first of the year beginning with her first year. She makes 13 contributions. She worked until she was 32 and then left full time work to have children and be a stay at home mom. She left her IRA invested and plans to begin drawing from her IRA when she is 65.

 

Bob started his IRA at age 32. The first 12 years of his working career, he used his discretionary income to buy a home, upgrade the family cars, take vacations, and pursue his golfing hobby. At age 32, he made his first $2,000 contribution to an IRA, and contributed $2,000 every year up until age 65, a total of 33 years / contributions. He plans to retire at age 65 and make withdrawals from his IRA.

 

Both IRA accounts grow at a 7% annual rate. Do not consider any tax effect.

Write a two to three (2-3) paragraph summary in which you:

Create a chart summarizing the details of the investment for both Bob and Lisa.

Explain the results in terms of time value of money.

 

 

· Using the following links to the Frontline videos and then answer the following questions:

. Short Version – https://youtu.be/HX6Fg62l0e8

. Long Version – https://youtu.be/7MXOr3KELqE

1. What was the impact of the near failure of Bear Stearns and the failure of Lehman Brothers on Money Markets?

2. What actions did the Federal Reserve and the Treasury Department take? What were the impacts of the decisions if any?

 

 

 

 

 

 

 

 

Homework

 

 

Complete the following homework scenario:

 

Select one (1) U.S. publicly traded company and review its most recent Annual Report. (You may use one (1) of the three (3) companies you selected for your Stock Journal assignment.)

Use the Income Statement and Balance Sheet to determine the changes in:

assets, liabilities, and equity total revenue and net income Briefly describe the change from the current and prior years in each of these key areas and determine if the changes would be positive or negative from an investor / stockholder’s view.

 

Determine the current value of your total investment. Do not make any changes to your investment at this time. Calculate your total based on the number of shares and the new price per share, for each company.

 

Provide your opinion / assessment of your investments. Evaluate the results of your current investment. Are you happy with the result and the trend? Are you upset because you’re investment is worth less than $25,000. Feel free to speculate / guess at why you believe the stock increased, decreased, or remained static.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Complete the following homework scenario:

 

Required:

Compare the results of the three (3) methods by quality of information for decision making. Using what you have learned about the three (3) methods, identify the best project by the criteria of long term increase in value. (You do not need to do further research.) Convey your understanding of the Time Value of Money principles used or not used in the three (3) methods. Review the video titled “NPV, IRR, MIRR for Mac and PC Excel” (located at https://www.youtube.com/watch?v=C7CryVgFbBc and previously listed in Week 4) to help you understand the foundational concepts:

 

Scenario Information:

Assume that two gas stations are for sale with the following cash flows; CF1 is the Cash Flow in the first year, and CF2 is the Cash Flow in the second year. This is the time line and data used in calculating the Payback Period, Net Present Value, and Internal Rate of Return. The calculations are done for you. Your task is to select the best project and explain your decision. The methods are presented and the decision each indicates is given below.

 

Investment Sales Price CF1 CF2

Gas Station A $50,000 $0 $100,000

Gas Station B $50,000 $50,000 $25,000

 

Three (3) Capital Budgeting Methods are presented:

Payback Period: Gas Station A is paid back in 2 years; CF1 in year 1, and CF2 in year 2. Gas Station B is paid back in one (1) year. According to the payback period, when given the choice between two mutually exclusive projects, the investment paid back in the shortest time is selected.

Net Present Value: Consider the gas station example above under the NPV method, and a discount rate of 10%:

NPVgas station A = $100,000/(1+.10)2 – $50,000 = $32,644

NPVgas station B = $50,000/(1+.10) + $25,000/(1+.10)2 – $50,000 = $16,115

Internal Rate of Return: Assuming 10% is the cost of funds; the IRR for Station A is 41.421%.; for Station B, 36.602.

 

Summary of the Three (3) Methods:

Gas Station B should be selected, as the investment is returned in 1 period rather than 2 periods required for Gas Station A.

Under the NPV criteria, however, the decision favors gas station A, as it has the higher net present value. NPV is a measure of the value of the investment.

The IRR method favors Gas Station A. as it has a higher return, exceeding the cost of funds (10%) by the highest return.