Blog

Maroon Brands can buy a food truck for $95,000. The truck is expected to generate $2,000 of net cash flow at the end of every month for 5 years, after which it is worth nothing. Maroon Brands’ cost of capital is 9% APR with monthly compounding. What is the NPV of buying the truck?

Bulldog Outfitters borrows $36,000 to buy a delivery van at 7.2% APR with monthly compounding. The loan is repaid in 48 equal monthly payments, the first one month from today. What is the monthly payment?

Starkville Mills needs to carry $150,000 of extra inventory for one year. Nothing is repaid until the end of the year – interest just accrues. Line A quotes 9.6% APR with monthly compounding. Line B quotes 9.3% APR with quarterly compounding. Which line is cheaper, and by how much on an effective annual basis?

You retire with $780,000 in an account paying 6% APR with monthly compounding, and you withdraw $5,500 at the end of every month. How long will the money last?

Maroon Brands borrows $525,000 to build a commissary and repays it with 120 equal monthly payments at 7.8% APR (monthly compounding), the first payment due one month after the loan is made. How much of payment number 45 is interest?

Torch Industries puts $4,000 into an account paying 8% per year, compounded annually. How much is in the account after 2 years?

A credit union quotes 9.9% APR compounded daily; a bank quotes 10.0% APR compounded annually. You are parking $50,000 for one year. Which is the better deal, and by how much?

In the two-investment comparison we worked in class – (i) 2% over 20 days versus (ii) 6.1% over 60 days – the APR ranking and the APY ranking disagreed. Which investment actually wins, and what is the lesson?

An annuity and a perpetuity both pay a constant CF each period. What is the difference between them?

Torch Industries is expanding rapidly and currently pays no dividend. Investors expect Torch to begin paying dividends with a dividend of $3.00 per share at the end of year 5. The dividend then grows at 25% per year during years 6 and 7, so D6 and D7 are each 25% above the year before. After year 7 the dividend grows at a constant 5% per year forever. The required return is 12% per year. What is the stock worth today?