Dynamic IT entrepreneur Robert Herjavec has built and sold several IT companies to major players such as AT&T. In 2003, Robert founded Herjavec Group, and it quickly became one of North America's fastest growing technology companies, scaling from $400K in sales to a run rate of $140 million. The firm's 643% growth in revenue between 2007 and 2012 put it at No. 108 on the 2013 Profit 500, and made it the 17th fastest-growing IT Products and Services company in Canada. In June 2015, Herjavec Group was named #23 on the Cybersecurity 500 List, a ranking that profiles the most innovative cybersecurity companies to watch in 2016.
The son of Croatian immigrants, Robert Herjavec started as a waiter, and launched his basement computer company. With initiative and an entrepreneurial spirit, Robert built and sold companies, eventually selling them for millions. Gaining fame as a motivational speaker and author, he has been highlighted in national newspapers and magazines. Robert has been known as the "nice dragon" on the Canadian show Dragons' Den and as a leading Shark on ABC's Emmy Award-winning hit Shark Tank. In these shows, entrepreneurs pitch their businesses to a panel of millionaires, with the hope venture capital will be offered to finance the growth of their business ideas.
What has Robert Herjavec done with his millions? A mansion in Toronto, a private island, and many luxury cars are some of the rewards. Racing and exotic cars are two of Robert's passions. He has a 2004 Ducati Formula One motorbike parked in the corner of his office, and the crumpled hood of a $350 000 Ferrari 458 Challenger that Robert crashed . . . . racing at over 200 km/h bolted to one wall. Named 2011 Rookie of the Year, Robert went on to race in the 2012 Ferrari Challenge.
Questions
You are considering an investment in a technology company similar to Herjavec Group Inc. The new company, Newtech, has experienced impressive growth over the past five years, and further growth is expected in future years. You plan to purchase 100 shares of Newtech. There are 28 000 shares outstanding.
1. At the beginning of the past year, Newtech borrowed $1 200 000 at 4.86% compounded annually, with the agreement to pay it back over 10 years in quarterly payments:
(a) How much must be paid in each payment?
(b) How much must be paid in each year?
(c) How much interest must be paid over the entire 10 years?
2. This year's income for Newtech is targeted to be $5.6 million. The company pays out annual dividends to its shareholders of 1.0% of income.
(a) If you purchase the shares, how much in dividends would you expect to receive based on the targeted income for this year?
(b) If you receive the same dividend amount for the next 10 years, and invest the dividends in a savings account earning 3% compounded monthly, what would be the savings account balance at the end of 10 years.