time value questions (finance) due thursday by 3 pm


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time value questions due by 3 pm thursday There are 6 questions BUT only need help with the last three Document Preview: Harvard Business School 9-291-028 Rev. November 15, 1993 Professor Michael E. Edleson prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1991 by the President and Fellows of Harvard College. To order copies, call (617) 495-6117 or write the Publishing Division, Harvard Business School, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of Harvard Business School. 1 Valuation and Discounted Cash Flows 1. To help ease a continuing need for financing, the CFO of E.I. DuPont de Nemours & Company is considering borrowing from insurance companies (private placement) in addition to the public debt markets. She must choose between transactions suggested by two different insurance companies. In both transactions, DuPont would receive $10,000,000 up front in exchange for a note promising a single (larger) maturity payment from DuPont in 15 years at a promised interest rate. The two options open to DuPont are: ! A note to Pru-Johntower Life Insurance Company, promising an annual rate of interest of 10%; ! A note to Tom Paine Mutual Life Insurance Company, promising a rate of interest of 9.72% per year, compounded monthly. Compare the effective annual rates of the two notes; also, compare the future required payment that DuPont will make in 15 years under each option. 2. Mr. and Mrs. Spirit purchased a $35,000 house 20 years ago. They took a 30-year mortgage for $30,000 at a 3% annual interest rate. Their bank, the First Amityville National Bank, has recently offered the Spirits two alternatives by which they could prepay their mortgage. The Spirits have just made their 20th annual payment. [A] Under the first alternative, the Spirits could prepay their mortgage at a 30%… Attachments: 434_valuation….pdf

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