2 points
Please Show the work
QUESTION 2
1. A General Co.
bond has an 8 percent coupon and pays interest annually. The face value is
$1,000 and the current market price is $1,020.50. The bond matures in 20 years.
What is the yield to maturity?
|
A. |
7.75 percent |
|
|
B. |
7.82 percent |
|
|
C. |
8.00 percent |
|
|
D. |
8.04 percent |
|
|
E. |
8.12 percent |
2 points
QUESTION 18
1. You are considering two
mutually exclusive projects with the following cash flows. Will your
choice between the two projects differ if the required rate of return is
8 percent rather than 11 percent? If so, what should you do?
Year Project
A Project B
0
-$240,000 -$198,000
1
$
0 $110,800
2
$
0 $ 82,500
3
$325,000 $ 45,000
|
A. |
yes; Select A at 8 percent and B at 11 percent. |
|
|
B. |
yes; Select B at 8 percent and A at 11 percent. |
|
|
C. |
yes; Select A at 8 percent and select neither at 11 |
|
|
D. |
no; Regardless of the required rate, project A always has |
|
|
E. |
no; Regardless of the required rate, project B always has |
2 points
QUESTION 22
1.
As the director of capital budgeting for Denver Corporation, you
are evaluating two mutually exclusive projects with the following net cash
flows:
Project X Project Z
Year Cash
Flow Cash Flow
0
-$100,000 -$100,000
1
50,000 10,000
2
40,000 30,000
3
30,000 40,000
4
10,000 60,000
If Denver’s cost of capital is 15 percent,
which project would you choose?
|
A. |
Neither project. |
|
|
B. |
Project X, since it has the higher IRR. |
|
|
C. |
Project Z, since it has the higher NPV. |
|
|
D. |
Project X, since it has the higher NPV. |
|
|
E. |
Project Z, since it has the higher IRR. |
2 points
QUESTION 24
1.
Use this information for the next 3 questions:
Lugar Industries is considering an investment in a new machine
with the following information:
Machine cost 225,000
Setup
cost
25,000
Salvage
value
50,000
Life 5
years
Net operating expense savings:
End of Year
1
$ 50,000
End of Year
2
$ 90,000
End of Year
3
$110,000
End of Year
4
$120,000
End of Year
5
$120,000
WACC
10%
Tax rate 40%
Assumed value of the machine
at end of 5 years
is $50,000
If Lugar buys the machine, calculate the following answers.
Remember to include the impact of depreciation, taxes, and salvage value.
Calculate the NPV. You need to take into account
depreciation, taxes and salvage value into account when calculating this
problem. Round you answer to the nearest whole number. Do not use $, commas, or
decimal points)
QUESTION 25
1. Based on the
above information, calculate the IRR. Round you answer to the nearest two
decimal places. Do not use %) (For example, 34.4550% would be entered as
34.46.
7 points
QUESTION 26
1. Based on your
calculations, should Lugar buy the machine?
Yes
No
2 points
QUESTION 27
1. Lucinda Diamanti is 10 years old today (August
15th) and while all she’s interested in is her new bike, her parents Mr. &
Mrs. Diamanti are considering how they will pay for her college education
beginning in 8 years. They decide to set up a meeting with their financial
adviser Cindy Morgan to discuss an education savings plan. During the meeting,
the Diamanti’s inform Cindy thatthey have $8,000 they can use to begin the savings plan, and from what they can determine, Lucinda
will require 4 years to complete her undergraduate degree in molecular biology.
Cindy consults a reputable college reference to see that tuition costs are
currently estimated at $32,000 per year and are expected to grow at 4% each
year for the foreseeable future. The Diamanti’s are concerned that they won’t
have enough money and ask Cindy how to make sure they have enough to completely
pay for Lucinda’s undergraduate education. The Diamanti’s inform Cindy that
they want to make deposits into the education savings plan on an annual basis
until Lucinda’s first year in college at which point they will stop making
contributions. Cindy tells them they can earn 8% annual interest on their
savings plan. Your job to answer the following two questions (You may assume
there are 8 years between today and the beginning of Lucinda’s first day in
college):
Assuming the
estimates on tuition costs are correct, how much money needs to be in the
account when Lucinda begins college in 8 years to fund 4 years of college?
Round your answer to a whole number. (No $ signs, commas, or decimal
points)
7 points
QUESTION 28
1. How much money do the Diamanti’s need to deposit
annually in order to reach their goal to fund Lucinda’s education fully?
Remember that the Diamanti’s have $8,000 to invest today.Round your answer to a whole number. (No $
signs, commas, or decimal points)
7 points
QUESTION 29
1.
Please use the following facts to analyze this nest two questions:
Assume you just received a bill for services you and have the
following two payment options:
Option 1:
Pay the entire bill of $600 now
Or
Option 2:
Pay:
$130 now
And
$130 for each of the next 4 months
What annual interest rate (APR) are you paying if
you choose Option 2? Assume monthly compounding. Round you answer
to the nearest two decimal points. Do not use $, commas or %. For
example, 25.34% would be entered as 25.34.
6 points
QUESTION 30
1. What Effective Annual Rate are you paying if you
choose Option 2? Assume monthly compounding. Round you answer to
the nearest two decimal points. Do not use $, commas or %. For example,
25.34% would be entered as 25.34.
6 points
QUESTION 31
1.
Please use the following
facts to analyze the next two questions:
|
Facts |
|
|
Lease |
24 |
|
Lease |
$ |
|
Monthly |
$ |
|
Sales |
8% |
|
Lease |
$ 15,000.00 |
|
Title |
$ |
|
Car |
7% |
|
Outright |
$ 19,500.00 |
2.
3. What is the NPV of the lease? Round you
answer to the nearest whole number. Do not use $, commas, or decimal
points and enter as a positive number. For example, -$34,567.50 would be entered as
34568.
4.
6 points
QUESTION 32
1. What would it cost you to buy the car today
if you were paying cash? Round you answer to the nearest whole
number. Do not use $, commas, or decimal points and enter as a positive
number. For example, $34,567.50 would be entered as 34568.
6 points
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