Linda has decided to set up an account that will pay her granddaughter (Janice) $5,000 a year indefinitely: Managerial Finance and Globalisation Assignment, MMU, Malaysia

1. Linda has decided to set up an account that will pay her granddaughter (Janice) $5,000 a year indefinitely. How much should Linda deposit in an account paying 8 per cent annual interest?

2. Promo Pak has compiled the following financial data:

A. Calculate the weighted average cost of capital using book value weights.
B. Calculate the weighted average cost of capital using market value weights.

3. Kimberly has just won a $20 million lottery, which will pay her $1 million at the end of each year for 20 years. An investor has offered her $10 million for this annuity. She estimates that she can earn 10 per cent interest, compounded annually, on any amounts she invests. She asks for your advice on whether to accept or reject the offer. What will you tell her? (Ignore Taxes)

4. Mr Handyman has been awarded a bonus for his outstanding work. His employer offers him a choice of a lump sum of $5,000 today, or an annuity of $1,250 a year for the next five years. Which option should Mr Handyman choose if his opportunity cost is 9 per cent?

5. In their meeting with their advisor, Mr. & Mrs Smith concluded that they would need $40,000 per year during their retirement years in order to live comfortably. They will retire 10 years from now and expect a 20-year retirement period. How much should Mr. & Mrs Smith deposit now in a bank account paying 9 per cent to reach financial happiness during retirement?

Answer

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