Bond Yields

Assume the par value of the bonds in the following problem is $1,000. Garland Corp. has a bond outstanding with a $90 annual interest payment, a market price of $820, and a maturity date in 10 years. a. What is the coupon rate? b. What is the current rate? c. What is the approximate yield to maturity?

Bond Value

Florida Investment Fund buys 90 bonds of the Gator Corp through a broker. The bonds pay 8% annual interest. The yield to maturity is 10%. The bonds have a 25-year maturity. Using the assumption of semiannual interest payments: a. compute the price of a bond b. compute the total value of the 90 bonds

Interest Rates and Bond Ratings

A previously issued A2, 15-yr industrial bond provides a return 1/4th higher than the prime interest rate of 8%. Previously issued A2 public utility bonds provide a yield of 3/8ths of a percentage point higher than previously issued A2 industrial bonds of equal quality. Finally, new issues of A2 public utility bonds pay 1/4th ...continues

What is the change in IRR?

2. You are considering an upgrade at a chip manufacturing plant. A new VLSI testing station costs $100,000, installed. It will save $50,000 per year in labor costs. Use five-year tax life and a tax rate of 40%. Find the rate of return (IRR). (Use two sig. figs.) If the unit requires reprogramming calibration during the fourth ye ...continues

Would you buy these patent rights?

3. An inventor offers to sell you patent rights to a device for $100,000. You have data to suggest a 35% chance of market success yielding net cash flows of $200,000 per year for 5 years. If not a success, no revenues are expected. With MARR equal to 20%, construct a decision tree and analyze by expected present worth. Would you ...continues

Real rate of return on the investment

4. You purchase a farm for $1,000,000 in cash. A local farmer rents the land to grow wheat and this pays your real estate taxes and insurance. After five years you can sell for $2,000,000. If inflation is 3% per year, what is your real rate of return on the investment?

When the plant was operating, which situation was most likely?

5. A Chemical Plant Expansion cost $45 Million. Reactor yields were difficult to estimate so the design engineers were conservative; the reactor could not be easily enlarged later. When the plant was operating, which situation was most likely? Explain. a) There were few bottleneck removal projects, b) A number of bottleneck remo ...continues

Find the alternative that should be selected using IRR or Present Worth on the incremental investment.

6. Three mutually exclusive alternatives requiring different investment levels are being considered. The life of all three is 20 years with no salvage value. The MARR is 15%. Al A2 A3 Investment $ 60,000 $ 30,000 $ 100,000 Cash flow per year $ 10,692 $ 6,162 $ 17,000 Return on total inv. 17.1% 20.0% ...continues

Compute: Payback period, Present worth, IRR, NPVI for this project.

7. As the manager of exploration for Chieftain Oil & Gas, you are evaluating a new offshore oil recovery module that will recover oil and gas deep in the Gulf of Mexico. The expected cash flows are: Initial investment $150 Million Net cash flows years 1 to 5, $20M (Million), $60M, $90M, $60M, $30M, then well depleted, no s ...continues

Capital Budgeting

1) Projects c and d both have normal cash flows. In other words, there is an up-front cost followed over time by a series of positive cash flows. Both projects have the same risk and a WACC equal to 10 percent. However, Project c has a higher internal rate of return than Project d. Assume that changes in the WACC have no effect ...continues