BUAD 306 Fall 2015 Professor Cary Frydman Practice Problems 1 Answers 1 a Agency problem b Pay the agent based on commission Ie 10 of the sale 2 a ABC b ABC 3 Simple Compounding National Bank 03 165 000 4 950 00 interest per year 4 950 6 29 700 00 interest over 6 year period 165 000 29 700 194 700 00 Annual Compounding First City Bank FV PV 1 r t 165 000 1 03 6 197 018 63 Enter 6 3 165 000 N I Y PV PMT FV Solve For 197 018 63 First City Bank National Bank 197 018 63 194 700 00 2 318 63 4 FV PV 1 r t r FV PV 1 t 1 500 000 79 000 1 17 1 1146 11 46 Enter 17 79 000 500 000 N I Y PV PMT FV Solve For 11 46 or 500 000 79 000 1 r r 0 11 46 11 46 17 5 The goal of financial management is to maximize share price The share price takes into account all future cash flows If we maximize today s revnue we may do so at the cost of future profits t 6 FV PV 1 r PV FV 1 r t 190 000 1 07 9 103 347 41 Enter 9 7 190 000 N I Y PV PMT FV Solve For 103 347 7 Enter a FV PV 1 r t r FV PV 1 t 1 1 000 000 443 000 1 30 1 0275 2 75 30 443 000 1 000 000 N I Y PV PMT FV Solve For 2 75 b FV PV 1 r t Enter r FV PV 1 t 1 643 380 443 000 1 11 1 0345 3 45 443 000 643 380 11 N I Y PV PMT FV Solve For 3 45 c FV PV 1 r t r FV PV 1 t 1 1 000 000 643 380 1 19 1 0235 2 35 Enter 19 643 380 1 000 000 N I Y PV PMT FV Solve For 2 35 b
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