Need someone to show me how to work these problems out.
1. Future Value and Annuity Payments
Christy and Michael are trying to decide if they will have enough money
to retire early in 15 years, at age 60. Their current assets are
$250,000 in retirement plans and they have $100,000 in other
investments. Together, they contribute $30,000 per year to their
retirement plans and another $6,000 to other investments.
a. If
their assets already in their retirement plans and other investments
grow at 9 percent per year, how much money will they have when they turn
60?
b. After
they retire, they will invest their wealth more conservatively and it
will earn 6 percent per year. What will be the amount of money that they
will be able to withdraw annually if they expect to live for 30 years
in retirement?
2. Cost of Capital (WACC).
Suppose your company has decided to use a divisional WACC approach to
analyze projects. The firm currently has 2 divisions, A and B, with
betas for each division of 0.5 and 1.5, respectively. If all current and
future projects will be financed with half debt and half equity, and if
the current cost of equity (based on an average firm beta of 1.0 and a
current risk-free rate of 5%) is 18% and the after-tax yield on the
company's bonds is 6%, what are the WACCs for divisions A and B? Hint:
First Solve for Market Risk Premium (MRP). MRP = (Km-Rf)
a. Division A WACC?
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