MSTE

Question 1

MoreTech Drilling may buy a patent with 14 years of life left. If MoreTech spends$1.5M to implement the technology, it expects net revenues of $650,000 per year for the patent’s life. If MoreTech’s discount rate for money’s time value is 10%, what isthe maximum price that MoreTech can pay for the patent?

Answer 1

3,300,000

Question 2

A 15-year municipal bond was issued 5 years ago. It pays 8% interestsemiannually on its face value of $15,000. At the end of 15 years, the face value ispaid. If your time value of money, or i, is 12.36%, what price should you offer for thebond?

Answer 2

11,559

Question 3

Creekside Engineering wants to establish an engineering scholarship in honor of its founder, Jane Freeborn. The endowment will be placed in a savings account bythe university, and the interest income will be available for the scholarship. Theaccount’s interest rate is 6%, and the scholarship amount is $3000 per year. What isthe required endowment?

Answer 3

50,000