## FINANCE-ABC Company’s bonds pay 8% annual coupon interest

ABC Company’s bonds pay 8% annual coupon interest and are selling

at 105 percent of par. The yield to maturity

is less than

8%

is equal to

8%

is greater

than 8%

Project A requires an

initial investment of $9,000 at t = 0. Project A has an expected life of

2 years with after-tax cash inflows of $6,000 and $8,500 at the end of Years 1

and 2, respectively. The project has a required return of 11%. What

is the equivalent annual annuity?

ABC Company has 6 percent bonds outstanding that mature in 13

years. The bonds can be called in 3 years at a call price of $1150. The bonds

pay interest semiannually and have a face value of $1,000. Currently, the bonds

are selling for $993 each. What is the yield to call (YTC)?

ABC Company offers a 5% coupon bond with a current market

price of $850.25. The yield to maturity is 7.34%. The face value is $1,000.

Interest is paid semiannually. What is the number of years until the bond

matures?

A project requires $15,200 of equipment that is classified as

a 7-year property. What is the depreciation expense in Year 2 given the

following MACRS depreciation allowances, starting with year one: 14.29, 24.49,

17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?

ABC Company has $1,000

face value bonds outstanding. These bonds pay interest semiannually, mature in

9 years, and have a 6.5 percent coupon.The current price of the bond is $1100. What is the yield

to maturity?

Suppose the nominal rate is 20.21% and the inflation rate is

4.68%. Solve for the real rate. Use the Fisher Effect formula.

What is the

project’s initial investment outlay based on the following information: The

machinery could be purchased for $27,378. Shipping and installation costs would

cost another $3,982. The project would require an initial investment in net

working capital of $7,157. The company’s tax rate is 30%.

ABC Company purchased a new

machinery 4 years ago for $64,613. Today, it is selling this equipment for

$13,284. What is the after-tax salvage value if the tax rate is 24 percent?

The MACRS allowance percentages

are as follows, commencing with year one: 20.00, 32.00, 19.20, 11.52, 11.52,

and 5.76 percent.

You have a

$65,037 portfolio that consists of $16,616 invested in Stock A, $18,213

invested in Stock B, $6,023 invested in Stock C, and the remainder in Stock D.

The portfolio has a return of 23.6 percent. The return for Stock A is 16.4

percent, for Stock B is 32.5 percent, and for Stock C is 4.4 percent. What is

the return for Stock D?

Five years ago, ABC Company invested $49,719 million in a

machinery. The investment in net working capital was $4,021 which would be

recovered at the end of the project. Today, ABC Company is selling the

machinery for $18,138 million. The book value of the machinery is $20,646

million. The tax rate is 23 percent. What are the terminal cash flows in Year

5?

A 12-year project is

expected to generate annual sales of $268,707, variable costs of $40,925, and

fixed costs of $39,845. The annual depreciation is $12,041 and the tax rate is

36 percent. What is the annual operating cash flow?

A project has an initial requirement of $80,763 for

equipment.The equipment will be depreciated to a zero book value over the

5-year life of the project.The

investment in net working capital will be $22,160.All of the net working capital

will be recouped at the end of the 5 years.The equipment will have an estimated

salvage value of $13,921. The annual operating cash flow is $38,463. The

cost of capital is 14 percent. What is the projectâs net present value if the

tax rate is 29 percent?

You have invested $65,588 portfolio in three securities. The

three securities comprise of the risk-free asset, Stock A, and Stock B. The

beta of stock A is 2.2 while the beta of stock B is 0.5. 17% of the portfolio

is invested in the risk-free security. What is the dollar amount invested in

stock B if the beta of the portfolio is 1.3?

ABC Company is

considering a new project. The project is expected to generate annual sales of

$65,476, variable costs of $18,689, and fixed costs of $9,650. The depreciation

expense each year is $10,884 and the tax rate is 25 percent. What is the annual

operating cash flow?

ABC Company is considering an investment that will cost the

company $486 at time=0. The after-tax cash flows are expected to be $89 each year

for 13 years. What is the payback period?

The risk-free

rate is 6.3%, the market risk premium is 11.2%, and the stockâs beta is

0.88. What is the required rate of return on the stock, E(Ri)?

Based on the following information, what is the portfolio beta?

Stock

Value

Beta

A

$47,570

1.14

B

$25,106

1.88

C

$30,608

0.72

D

$30,787

3.38

ABC Inc. is considering an investment of $1,763 million with

after-tax cash inflows of $422 million per year for six years and an additional

after-tax salvage value of 71 million in Year 6. The required rate of return is

15%. What is the investmentâs Profitability Index (PI)?

One year ago, you puchased 207 shares of ABC stock for $51.7

per share. During the year, you received a dividend of $6.83 per share.

Today, you sold all your shares for $60.64. What are the percentage return

on your investment?

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