C. CALCULATION SECTION

Instructions: In this section, please show all calculations. Partial credit will be given wherever possible, when your calculations are shown and they are completed correctly.

33. China Manufacturing Agents, Inc. is preparing a five-year plan. Today, sales are $1,750,000. If the growth rate in sales is projected to be 6 percent per year over the next five years, what will the dollar amount of sales be in year five?

34. Dan and Jia are newlyweds and have just purchased a condominium for $150,000. Since the condo is very small, they hope to move into a single-family house in 5 years. How much will their condo be worth in 5 years if inflation is expected to be 4 percent per year?

35. Calculate the value today at t = 0 of a $10,000 perpetuity at a 6 percent discount rate.

36. Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 10 years. If Bill can earn 4 percent on his contributions, how much will he have at the end of the tenth year?

37. Calculate the present value of an ordinary annuity of $2,750 each year for eight years, assuming an opportunity cost of 6 percent.

38. A generous philanthropist plans to make a one-time endowment to a renowned heart research center which would provide the facility with $40,000 per year into perpetuity. The rate of interest is expected to be 5 percent for all future time periods. How large must the endowment be?

39. James plans to fund his individual retirement account, beginning today, with an annual deposit of $2,000, which he will continue for the next 20 years. If he can earn an annual compound rate of 7 percent on his deposits, calculate the amount in the account upon his retirement.

40.41. A firm has an issue of $1,000 par value bonds with an 8 percent annual coupon interest rate outstanding. The issue pays interest annually and has 6 years remaining to its maturity date. If bonds of similar risk are currently earning 4 percent annually, calculate the market value that the firm's bond will sell for today.

42.43. Zhen Yi Computers has an outstanding issue of bonds with a par value of $1,000, which have a 6 percent annual coupon rate, with interest being paid semi-annually. The bond has 4 years to maturity. What is the value of the bond assuming an 8 percent market rate of interest?

44. A firm has an issue of preferred stock outstanding that has a stated annual dividend of $15. The required return on the preferred stock has been estimated to be 10 percent. Calculate the value per share of the preferred stock.

45. Eastern Enterprises, Inc. has an expected dividend next year of $3.10 per share, a growth rate for its dividends of 6 percent, and a required return of 11 percent. Calculate the value of a share of Eastern Enterprises, Inc.'s common stock.

46. Julian is considering purchasing the stock of Pepsi Cola because he really loves the taste of Pepsi. What should Julian be willing to pay for Pepsi today if it is expected to pay a $15.50 dividend in one year (D₁) and he expects dividends to grow at 2 percent indefinitely? Julian requires an 8 percent return to make this investment.

47.48. The Majestic Blind Company sells its finished product for an average of $95 per unit, with a variable cost per unit of $35. The company has fixed operating costs of $1,450,000 per year. Calculate the firms operating breakeven point in units.

a. Now, suppose that competition in the industry causes Majestic Blind Company to reduce its average selling price to $90 per unit to remain competitive. All of the other financial data remain at their initial levels. Calculate the firms new operating breakeven point in units.

49.--50 Books Galore, Inc. has annual fixed operating costs of $175,000; the average selling price per book is $28.00, and the firms variable cost per book is $13.00.

a. What is the firms operating breakeven point in units?

b. What is the firms operating breakeven point in sales dollars?

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