- What is the price of the following bond: 10 years to maturity, par value of $1,000, the annual coupon rate is $65 and the market interest rate is 8%. How much should you pay for this bone?
- You just purchased for a bond for $1,206 with 20 years to maturity and a par value of $1,000. Its annual coupon rate is $75. What is the bond’s yield to maturity?
- What are the major components of a bond? Briefly explain each one.
- Suppose you are contemplating purchasing RMI common stock this year. It’s expected that the dividend at the end of this year will be $1.64 and the market price of RMI’s stock is expected to be $22. Your required rate of return is 18%. What should the value of the security be?
- How do you define a junk-bond and what is a junk bond.
- Calculate the breakeven point for the following.
Annual fixed cost $100,000
Unit sales price $10
Unit variable cost $6
- Calculate the after cost of debt capital for the following:
TRW creditors require a before tax cost of debt of 7.8 percent rate of return. TRW corporate income rate is 34 percent. What is there after tax cost of debt?
- Calculate the average cost of capital for the following:
Source of capital capitalstructure before tax cost
Bonds 35% 7%
Preferred stock 5% 13%
Common equity 60% 14%
The tax rate is 34%
- Calculate the Net Present Value for the following two projects. Which project should you invest in and why?
Cash Flow Project A Project B
Yr. 1 $5,000 $7,000
Yr. 2 $5,000 $7,000
Yr. 3 $5,000 $4,000
Yr. 4 $5,000 $2,000
The company’s internal required rate of return is 5%.
Show you calculations.
- This question is not covered in your textbook. Use the Internet, but be careful of your sources.
Explain what corporate inversion is.
