Company ABC’s after-tax cash flow is $10 million (at the end of) this year and expected to grow at 5% per year forever. The appropriate discount rate is 9%. What is the value of company ABC?

• $111M
• $175M
• $238M
• $250M
• $275M

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

You own three oil wells in Vidalia, Texas. They are expected to produce 7,000 barrels next year in total, but production is declining by 6 percent every year after that. Fortunately, you have a contract fixing the selling price at $15 per barrel for the next 12 years. What is the present value of the revenues from the well during the remaining life of the contract? Assume a discount rate of 8 percent.

• 608,254
• 647,079
• 672,890
• 1,126,919
• 1,138,907

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

The annual membership fee at your health club is $750 a year and is expected to increase at 5% per year. A life membership is $7,500 and the discount rate is 12%. In order to justify taking out the life membership, what would be your minimum life expectancy?

• 16
• 17
• 18
• 19
• 20

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

My spouse and I are each 62 and hope to retire in 3 years. After retirement we will receive $5,000 per month after taxes from our employers pension plans and $1000 per month after taxes from Social Security. Unfortunately our monthly living expenses are $15,000. Our social obligations preclude further economies. We have $1,200,000 invested in a high-grade corporate-bond mutual fund. Unfortunately the after-tax return on the fund has dropped to 3.5% per year. We plan to make annual withdrawals from the fund to cover the difference between our pension and social security income and our living expenses.

How long will the money last?

• 15
• 15.4
• 15.8
• 16.4
• 16.8

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.

The annually compounded discount rate is 5.5%. You are asked to calculate the present value of a 12-year annuity with payments of $50,000 per year. The first payment arrives in 6 months. Following payments arrive at one-year intervals, at 18 months, 30 months, etc.

• $428,580
• $430,926
• $442,618
• $445,212
• $451,250

References

Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.