a) A wealthy parent is trying to fund a trust fund for his oldest son. The parent has set aside $293,200.00 today in an account that pays 8.00% annual interest. His oldest son will begin receiving the trust in 10.00 years, and the trust is set up to pay 15.00 identical annual payments. What will be the yearly withdrawal for the son from the trust?
b) A successful businessman is selling one of his fast food franchises to a close friend. He is selling the business today for $2,959,800.00. However, his friend is short on capital and would like to delay payment on the business. After negotiation, they agree to delay 3.00 years before the first payment. At that point, the friend will make quarterly payments for 12.00 years. The deal calls for a 8.68% APR “loan” rate with quarterly compounding. What quarterly payment will the friend make on the loan?
c) A loan shark offers $9,525.00 today in exchange for paying him $1,877.00 per year forever. What is the annual rate of interest on this “loan”?
d) A company generates $97,208.00 in cash flow per year. If investors want a 9.00% annual return to buy the company, how much are they willing to pay? Let’s assume the company will last forever for valuing the opportunity.