A bond matures in 20 years and pays an 8 percent annual coupon. The bond has a face value of $1000 and currently sells for $900. What is the bond's current yield and yield to maturity?

You have just received a windfall from an investment you made in a​ friend's business. He will be paying you $ 25,034 at the end of this​ year, $ 50,068 at the end of the following​ year, and $ 75,102 at the end of the year after that​ (three years from​ today). The interest rate is 10.2 % per year.

a. What is the present value of your​ windfall?

b. What is the future value of your windfall in three years​ (on the date of the last​ payment)?

You are planning to buy a stock that has just paid a dividend (D0) of $2.50. In addition, you anticipate the following dividend growth rates:
• Year 1 = 100%
• Year 2 = 0%
• Year 3 = -30% (note this is NEGATIVE 30%)
• Year 4 = 20%
• Years 5 through infinity = 4%
Assume a discount rate of 10%. Based on this, what is the value of the stock today? (Hint: use the three-step process of non-constant growth DDM).

Costco is deciding between two potential investments. Each as an initial cost of 10,000 today,ans will produce the cash flow and only cash flows- listed below. 9 assume the cash flows occur at the end of the year). assuming a 10% return is required on investments, compute the net present value of the two options and indicate which investment if any should be made.

cash flow produce by each investment

year Drops Hots

1 $5,000 $8000

2 $6,000 $7,000

3 $7,000 $6,000

4 $8,000 $5,000

1. You have a zero coupon bond with ten years until maturity with $1000 face value. Yield to maturity is 5%. What is the duration of the bond? Show all calculations.

2. You have a 2% bond paying annual coupons, 3 years until maturity with $1000 face value. Yield to maturity is 2.5%. What is the duration of the bond? Show all calculations.

1.                 Define with words the following ratios:

A.            Liquidity (do each individually - current ratio, quick ratio, days cash on hand, days receivables)

B.             Solvency (Debt Service Coverage Ratio)

C.            Profitability (do each individually -  Total Margin, Operating Margin, Return on Total Assets)

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.0%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 11% 40% Bond fund (B) 6% 20% The correlation between the fund returns is .16. What is the expected return and standard deviation of the optimal risky portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return % Standard deviation %

You own a lot in Lowell, Massachusetts that is currently unused. Similar lots have recently sold for $0.7 million. Over the past five years, the price of land in the area has increased 8 percent per year, with an annual standard deviation of 12 percent. A buyer has recently approached you and wants an option to buy the land in the next 12 months for $0.77 million. The risk-free rate of interest is 3 percent per year, compounded continuously. How much should you charge for the option? $16,877.44 $15,996.12 $14,762.58 $13,267.79 $12,196.55

Your company is deciding whether to buy a new production equipment worth $25 mil and has employed a consultant to evaluate the decision. Your boss is unhappy with the following report:

You note that the consultant didn’t factor in that the projects require an upfront working capital injection of $10 million, which will be fully recovered in year 10. The consultant has attributed the $2 million SG&A expense, out of which $1 million is sunk cost (it has to be used regardless of the project decision).
Given the information, calculate free cash flows for years 0 through 10. If the interest rate is 10%, what’s the value of the project?

Charlene is evaluating a capital budgeting project that should last for 4 years. The project requires $700,000 of equipment. She is unsure what depreciation method to use in her analysis, straight-line or the 3-year MACRS accelerated method. Under straight-line depreciation, the cost of the equipment would be depreciated evenly over its 4-year life (ignore the half-year convention for the straight-line method). The applicable MACRS depreciation rates are 33%, 45%, 15%, and 7%. The company's WACC is 11%, and its tax rate is 35%.

What would the depreciation expense be each year under each method? Round your answers to the nearest cent. Year Scenario 1 (Straight-Line) Scenario 2 (MACRS) 1 $ $ 2 3 4

Which depreciation method would produce the higher NPV?

How much higher would the NPV be under the preferred method? Round your answer to two decimal places. Do not round your intermediate calculations.

The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $625,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $265,000. The old machine is being depreciated by $125,000 per year, using the straight-line method. The new machine has a purchase price of $1,150,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $155,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $225,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

What initial cash outlay is required for the new machine? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign. $

Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar. Year Depreciation Allowance, New Depreciation Allowance, Old Change in Depreciation 1 $ $ $ 2 3 4 5

What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar. Year 1 Year 2 Year 3 Year 4 Year 5 $ $ $ $ $

Should the firm purchase the new machine?

In general, how would each of the following factors affect the investment decision, and how should each be treated?

1. The expected life of the existing machine decreases.

2. The WACC is not constant, but is increasing as Bigbee adds more projects into its capital budget for the year. The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Use the following table to answer questions 1 - 6:

1. What is the expected return for asset A?

2. What is the expected return for asset B?

3. What is the standard deviation for asset A?

4. What is the standard deviation for asset B?

5. What is the expected return of a portfolio that has 70% in Asset A and 30% in Asset B?

6. The standard deviation of the 70% A and 30% B portfolio most likely should:

Answer the following questions in an Excel file. Each questions with multiple parts requires a separate answer. Label your steps and show each answer (1, 2, 3, and 4) in a separate Excel tab. For problems that require a written answer, use a text box in Excel to record the text.

1. Calculate the PV of $5,000 received 10 years from now compounded annually at discount rates of:
   1. 1%
   2. 4%
   3. 12%
2. Calculate the FV of $5,000 invested for 20 years using annual interest rates of
   1. 3%
   2. 7%
   3. 10%
3. Prepare a bond amortization table using the following information. Using this information, calculate the duration of this bond.
   1. Principal: $1,000,000
   2. Face rate: 8%
   3. Yield: 7%
   4. Semiannual payments made over 5 years
4. For the following questions, use information from your company’s financial statements
   1. How much total long-term debt does your company report?
   2. What is the maturity of the longest-term debt your company has?
   3. Is the debt reported at face value on the balance sheet?
   4. Calculate the present value of the longest term debt on your financials considering:
      1. A discount rate of 4%
      2. Annual payments made on the debt
      3. Term debt (rather than serial)
      4. A maturity date equal to the reported maturity date on the financials.

One year​ ago, your company purchased a machine used in manufacturing for $ 120,000. You have learned that a new machine is available that offers many​ advantages; you can purchase it for $ 140,000 today. It will be depreciated on a​ straight-line basis over ten​ years, after which it has no salvage value. You expect that the new machine will contribute EBITDA​ (earnings before​ interest, taxes,​ depreciation, and​ amortization) of $ 55,000 per year for the next ten years. The current machine is expected to produce EBITDA of $ 23,000 per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, after which it will have no salvage​ value, so depreciation expense for the current machine is $ 10,909 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50,000. Your​ company's tax rate is 40 %​, and the opportunity cost of capital for this type of equipment is 12 %. Is it profitable to replace the​ year-old machine?