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A pharmaceutical company is evaluating whether to invest in research and development (R&D) for a new drug with the potential to treat a prevalent medical condition. The company believes that if successful, the new drug could generate substantial revenue and strengthen its market position. What kind of decision is this firm making?

You save $300 per month starting TODAY (i.e., at year 0) for 12 months to pay for your next vacation (the last contribution is 12 months from now). If your saving account pays 12% APR compounded monthly, how much will you be able to spend on your vacation after saving for 12 months (i.e., the value accumulated in month 12, immediately after you make the last contribution)? Show your work.

You are thinking about investing in a mine that will produce $7,000 worth of ore in the first year (i.e., year 1). As the ore closest to the surface is removed, it will become more difficult to extract the ore. Therefore, the value of the ore that you mine will decrease at a rate of 2% per year (i.e., -2%) forever. If the appropriate interest rate is 3% per year, then the present value (PV0) of this mining operation is closest to:

You want to save money to meet two goals. First, you are currently 25 years old and aim to retire in 40 years (at the age of 65), with a plan to secure a retirement income of $100,000 annually for 25 years (i.e., withdrawals from your retirement account). You will make your first withdrawal 41 years from now, and your final withdrawal will occur 65 years from today, when you are 90 years old. Second, you plan to travel to Europe 45 years from now, which is five years after your retirement. For this trip, you will need an additional $30,000 that year, in addition to the regular $100,000 retirement income. Two years before retiring (38 years from now), you plan to relocate to your vacation home and sell your primary residence, which you anticipate selling for $110,000. The proceeds from this sale will be deposited into your retirement account and used to cover your retirement expenses. (25 points) If you can earn a 12% Effective Annual Rate (EAR) in your retirement account, which corresponds to a 12% Annual Percentage Rate (APR) compounded annually (m=1), how much would you need to save annually over the next 40 years? Assume your first savings contribution starts one year from now, and your final contribution will be in the 40th year, with the contribution amount being the same each year. (5 points) Now, suppose you opt for quarterly contributions to achieve your retirement goals, starting with your first savings installment one quarter from today. You plan to save an equal amount every quarter. To meet your goals, how much do you need to save each quarter over the next 40 years? Your final contribution will be made at the end of the 40th year, which corresponds to 160 quarters from now. Assume you can earn 12% EAR (which corresponds to a 12% APR compounded annually) in your retirement account. Show your work. 

Which of the following statements is FALSE about interest rates?

You are taking out a loan today (month 0) to finance an 18-month professional program. You will graduate at the end of month 18. The loan includes a 12-month grace period after graduation during which you are not required to make any payments. After the grace period ends, you must repay the loan using 60 equal monthly payments of $1,050, paid at the end of each month. Therefore: The first payment will be made at the end of month 31. The 60th (final) payment will be made at the end of month 90. Interest begins accruing immediately at month 0 on the outstanding loan balance and continues to accrue during the program and the grace period (no payments are required during these months, but interest is still charged). The interest rate on the loan is 12% APR, compounded monthly. (8 points) How much can you borrow today? (PV at month 0.) Show your work. (2 points) What is the future value of the payment stream (i.e., the value of this annuity) at the time of the final payment (end of month 90)? Show your work

During Year 5, Falcon Corp. reports: Beginning fair value of plan assets: $1,900,000 Actual return on plan assets: $140,000 Employer contributions: $200,000 Benefits paid: $160,000 What is the ending fair value of plan assets at December 31, Year 5?

Ridge Corp. is involved in a lawsuit relating to a contract dispute. At December 31, Year 1, legal counsel believes a loss is probable and the estimated loss is $300,000. Settlement is expected in Year 2. How should Ridge account for this at December 31, Year 1?

On January 1, Year 1, Vega Corp. issued 5-year bonds with a face value of $1,000,000 and a stated interest rate of 8%, payable annually. The market rate of interest at issuance was 10%. Which of the following best describes the issue price and resulting accounting treatment?

On July 1, Year 1, Orion Ltd. received $120,000 for a 12-month service contract and initially recorded the entire amount as unearned revenue. Revenue is recognized evenly over time. At December 31, Year 1, Orion reports the following year-end balances (before adjusting unearned revenue): Accounts payable: $410,000 Accrued wages: $95,000 Unearned revenue (unadjusted): $120,000 Long-term note payable due June 30, Year 3: $600,000 What total amount should Orion report as current liabilities at December 31, Year 1 after making the required unearned revenue adjustment?