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 Ques 1      20 points

You are the owner of a small business and you want to sell your business, and you are deciding what price you should ask for the company. The first three years the company will have cash in-flows of $20,000 at the end of each year. The next 5 years the cash flows will grow at 5% per year. In year 8, the company will sell some of its assets at the beginning of year 8 for $ 10,000 cash. The owners cost of money is 10%. How much should the owner ask for the business?

Ques 2       10 points

After graduation with your MBA, you are offered a job paying $60,000 per year, which will increase by 5% per year. You plan to work for this company for 25 years and then retire. Assume interest rate is 8% and your salary is paid annually at the end of the year. What is the present value of your salary?

Ques. 3       20 points

(b) You plan to save 15% of your yearly salary of $100,000 for retirement in a mutual fund earning 8% per year. Your salary will increase by 3% per year for 24 years when you retire. How much money will you have when you retire?

(b) How much can you spend per year if you will live for 15 years after retirement if you can earn 6% on your money?

Ques. 4     25 points

4. Harmon outstanding common stock is currently selling in the market for $24. Dividends of $1.60 per share were paid last year, and the company expects annual growth of 4%.

(a)  What is the value of the stock to you, given a 9% required rate of return?

(b)  Determine the expected rate of return for the stock.

(c)  Should you purchase this stock?  Why?

Question 5    25 points

Mason food company has an 8% annual coupon interest rate on a $1,000 par value bond with 12 years left to maturity.  Bonds of same maturity now sell to yield 6% return.

(a)  How much would you be willing to pay for one of these bonds today?  Why?

(b)  If the bond is selling for $ 900 what is the yield to maturity?

(c)  Will you buy this bond? Explain in detail what key factors you will consider in making your decision.

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