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1. Billie Eilish is 20 and already worried about her future finances. She is currently happy but wants to be happier than ever by the time she retires. Hence, she wants to make some investments towards a couple of goals that she wants to achieve after retirement. First, she wants to be able to withdraw $100,000 each month to cover her clothing and make-up expenses for 20 years after she stops singing and retires at the age of 50. Second, she would like to donate $50,000,000 to NRDC at the age of 70. Lastly, the year she retires, she wants to buy a house in Hawaii that costs $10,000,000 today, with the price being estimated to increase by 2% each year.
   1. she can earn 18% compounded monthly on her retirement account, how much does she need to deposit into her account each month, starting next month, until retirement to achieve her goals?
   2. she decides to save and deposit $5,000 each month for the first 5 years only and then not to make any further deposits, what is the most she can offer on the house in Hawaii using her savings without having to give up the other two goals?
2. You have two job offers with the following 6-year compensation terms: the first one offers you $80,000 a year for the next 6 years; the other one offers you a signing bonus of $15,000 plus $50,000 a year for the first 4 years and then 60,000 a year for the last two years. Assume that the appropriate discount rate is 12% and there are no taxes.
   1. How much would you lose in present value if you accepted the second offer?
   2. Propose a change to the second offer that would make you indifferent between the two offers.
3. Assume that you just graduated from Mason and are employed at an investment bank making $120,000 (after-tax) per year, and you expect to make the same amount for each of the next 5 years. A classmate from MBA643, who knows what a hard party person you were, gives you a call and tries to convince you to join forces with him on a project. The project is to produce a new type of vodka, Hangovers over, which comes with the premise of not making one feel hangover the next morning no matter how many bottles one drinks. If you decide to join, you will have to quit your current job and work full-time on the project. The project requires an initial investment of $400,000 in production equipment, which can be depreciated straight-line over 5 years to a salvage value of $80,000. You own a house that you are currently renting out for $24,000 a year and you are planning to use the house as your office if you join the project. You expect to sell 20,000 bottles of the Hangovers over at $40 per unit each year for the next 5 years. The production cost is $15 per unit, and fixed costs associated with the project are estimated to amount $150,000 per year. Assume that your tax rate is 40% and your discount rate for projects with similar risk is 12%. Should you accept the project?
4. Given the following yields for bonds with different credit ratings;

Credit Rating	Yield
AAA	3%
AA	3.2%
A	3.5%
BBB	3.8%
BB	4.5%
B	5.25%

1. What would be the fair price of a 5-year maturity bond, which currently has identical risk to a bond rated A, if it has a coupon rate of 12% paid annually, and a par value of $1,000?
2. What would be the price of the same bond 3 years from today if the bond is expected to be downgraded to BBB at the end of the 3rd year?
3. Analysts expect MC, Co. to maintain a dividend payout ratio of 35% and enjoy an expected growth rate of 12% per year for the next 5 years. After the fifth year, all earnings will be paid out as dividends. The required rate of return on MC, Co equity is 8%.
   1. Given that the last dividend paid was $0.5 and the current market price of the stock is $15, what growth rate does the market expect for MC, Co?
   2. what price would the analysts value the stock under their own expectations?
   3. Suppose 5 years have gone by and the company has to make a decision on how to move forward. It can either pay out all earnings as dividends without considering any growth opportunities, or choose a growth strategy where the company will expand into new lines of business in global markets. If the management chooses this strategy, the payout ratio will be reduced down to 20% from 35%, and the company will be able to maintain a growth rate of 7% forever. Which strategy should the management choose to maximize shareholder value?

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