Preston Corporation has a bond outstanding with an annual interest payment of $100, a market price of $1,300, and a maturity date in 6 years. Assume the par value of the bond is $1,000.   
     
Find the following: (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
  

Coupon Rate

Current Yield

approximate yield to maturity

Exact yield to maturity

Bid Price - Consider a project to supply 100 million postage per year to the Postal Service for the next five years. You have an idle parcel of land available that cost $750,000 five years ago; if the land were sold today, it would net you $1,125,000 aftertax. The land can be sold for $1,295,000 after taxes in five years. You will need to install $5.1 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project’s five-year life. The equipment can be sold for $450,000 at the end of the project. You will also need $425,000 in initial net working capital for the project, and an additional investment of $50,000 in every year thereafter. Your production costs are .38 cents per stamp, and you have fixed costs of $1.1 million per year. If your tax rate is 23 percent and your required return on this project is 10 percent, what bid price should you submit on the contract?

only calculator.

A monopolistic firm is currently producing 3,500 units of output; price is $100, marginal revenue is $7, average total cost is $5.50, marginal cost is $4.50, and average variable cost is $3.75. The firm should

a. raise price because the firm is losing money.

b. keep the price the same because the firm is producing at minimum average variable cost.

c. raise price because the last unit of output decreased profit by $5.50.

d. lower price because the next unit of output increases profit by $2.50.

A firm with market power is producing a level of output at which price is $60, marginal revenue is $45, average variable cost is $50, and marginal cost is $57. In order to maximize profit, the firm should

a. decrease price.

b. increase price.

c. keep price the same.

d. increase output.

e. shut down.

Price of premium VT cheddar cheese is $100 per kg. The cost function of a perfectly competitive cheese-producing firm is

C=52q-q2+13q3+4.67        q is in thousand kg

1. COST CONCEPTS

Write down the expressions for the following cost concepts

1. FC

2. VC

3. AFC

4. AVC

5. ATC

6. MC

1. 2. PROFIT MAX
2. Solve for the profit maximizing (or loss-minimizing) quantity of the firm
3. Solve for the profit (loss) at this quantity

C. SHUTDOWN

Solve for the shutdown price (and quantity)

D. SUPPY CURVE

Write down the expression for the supply curve of this firm

E. ILLUSTRATE

            Illustrate your answers in B to D

Suppose the price of a good is $100.  Suppose when a particular firm producing this good produces 1000 units a week, its average cost is $90.  This firm operates in a competitive market and therefore, can sell whatever quantity it wants to sell at this price.  What profit would this firm be making each week?

Is the answer $10000?

The specifics of the opportunity are as follows:

Assume 100% occupancy

Property purchase price $2,250,000. Loan to Value Ratio (LTV) 80%

Loan Terms: fully amortized over 30 years at 4.25% APR (nominal rate) paid monthly

The property offers six recently updated “luxury” apartments. Each apartment has 3 bedrooms and 2.5 baths in 1,800 square feet of living space. Rents are $1,690 per month per apartment. All six units are leased but one of the units only receives half rent because the tenants in that unit are responsible for year round cosmetic maintenance of the walkways and greenspaces and also minor emergency repairs. You plan to invest an additional $150,000 in paid in capital for cosmetic updates on the property and closing fees. The tax rate on the property is 1.75% of the purchase price. For the sake of simplicity will assume that taxes and rents are constant.

2. If you can lower your monthly interest charge by 50 basis points (to 3.75%) by paying 3.0 “points” at closing, should you do it? Explain why or why not and demonstrate how the values change in the spreadsheet by showing values with and without “points”.

Instructions: Set up a spreadsheet for valuing this opportunity using Excel functions to answer the questions given

The specifics of the opportunity are as follows:

Assume 100% occupancy

Property purchase price $2,250,000. Loan to Value Ratio (LTV) 80%

Loan Terms: fully amortized over 30 years at 4.25% APR paid monthly

The property offers six recently updated “luxury” apartments. Each apartment has 3 bedrooms and 2.5 baths in 1,800 square feet of living space. Rents are $1,690 per month per apartment. All six units are leased but one of the units only receives half rent because the tenants in that unit are responsible for year round cosmetic maintenance of the walkways and greenspaces and also minor emergency repairs. You plan to invest an additional $150,000 in paid in capital for cosmetic updates on the property and closing fees. The tax rate on the property is 1.75% of the purchase price. For the sake of simplicity will assume that taxes and rents are constant.

5.If you hold the property for exactly 10 years then sell it for $3,500,000 what rate of return did you get if you consider the cost of a loan that you took to purchase the property given these loan conditions: $3,500 origination fee and $5,875 closing costs and 2.0 points paid at closing. Assume the loan was carried from purchase to close of sale then repaid exactly ten years after purchase. For simplicity we will assume that taxes and rents are held constant.

Instructions: Set up a spreadsheet for valuing this opportunity using Excel functions to answer the questions given

The specifics of the opportunity are as follows:

Assume 100% occupancy

Property purchase price $2,250,000. Loan to Value Ratio (LTV) 80%

Loan Terms: fully amortized over 30 years at 4.25% APR paid monthly

The property offers six recently updated “luxury” apartments. Each apartment has 3 bedrooms and 2.5 baths in 1,800 square feet of living space. Rents are $1,690 per month per apartment. All six units are leased but one of the units only receives half rent because the tenants in that unit are responsible for year round cosmetic maintenance of the walkways and greenspaces and also minor emergency repairs. You plan to invest an additional $150,000 in paid in capital for cosmetic updates on the property and closing fees. The tax rate on the property is 1.75% of the purchase price. For the sake of simplicity will assume that taxes and rents are constant.

3. Under the original loan conditions, how much do you have to pay extra each period to make the loan pay off in 20 years? What is the interest cost savings from doing that?

Instructions: Set up a spreadsheet for valuing this opportunity using Excel functions to answer the questions given

1. Company PVFV sells shoes at an average price of $100. The cost to produce each pair of shoes is $40. The company has annual fixed costs of $40,000.

Four questions:

1. What is the breakeven in terms of unit sales? Show calculations using 2 different methods.
2. Include a written description of how the two methods approach the problem.
3. What is the breakeven in terms of sales revenue?

ABC Company's current stock price is $100.

The risk free rate is 4%

a) The maximum value of a European put option with an exercise price of $50 and 6 months remaining till expiration is closest to?

b)The minimum value of an American call option with an exercise price of $80 and 6 months till expiration is closest to?