TEST3-; Date November 17, 2017-Section -1-9:00-11:00 AM Direction Please read th
ID: 1109836 • Letter: T
Question
TEST3-; Date November 17, 2017-Section -1-9:00-11:00 AM Direction Please read the questions carefully. Please draw the cash flow diagrams and explain the steps that you are going to approach to solve the problems then solve the problem. Show the details in solving the problems. Please write legible hand writing, otherwise there is a deduction from your grade 10 points. Missing Cash Flow Diagram is deductible points equal to 20% of the total points for each question Question ( 1 )-(30 points) Part e maintenance on a machine is expected to be $155 at the end of the first year, then increasing by $35 each year for the next 7 years. What sum of money would need to be set aside now to pay the maintenance for the 8-year period? Assume 10% interest. a) Th b) W An individual is considering the purchase o of 12% compounded monthly. The payments are due at the end of each month. Compute the hat is the uniform annual equivalent maintenance cost for the above machine? Compute an equivalent A for the maintenance costs Part 2 f a used automobile. The total price is $6200 with down payment and the balance to be paid in 48 equal monthly payments with interest $1240 as a monthly payment Question 2)-85 point) received two S500 payments. The bond matures in five more years on May 31, 1997. bond for $9,000 on June 1, 1991. The bon you have alread ou pays $500 interest at the end of each six months. It is now June 1, 1992. Thus, (a) What is the bond (or coupon) interest rate? (b)What is the bond worth today, if 10% is an acceptable value for MARR? Question B)-35 points) The CROC Co. is considering a new milling machine. They have narrowed the choices down to three alternatives in addition to the Do Nothing Alternative Alternative Economy Deluxe $75,000 ar First Cost Annual Benefit $79 $16,000 osts Salvagevalues 153000 All machines have a life of ten years. Using incremental rate of return analysis, which alternative should the company choose? Use a MARR of 10%.Explanation / Answer
2)
Answer:
Face value = $10000
Purchase price = $9000
Interest amount paid on each six month = $500
a.
Semiannual Coupon rate = Interest payment / face value of the bond
Semiannual Coupon rate = 500 / 10000 = 5%
Thus,
Annual coupon rate = 2*5% = 10% and it is paid on semiannual basis.
b.
Semiannual Bond Interest yield = Semiannual Interest earning / purchased price of the bond
Semiannual Bond Interest yield = 500/9000 = 5.55%
Thus, annual interest yield (nominal) = 2*5.55% = 11.1% (paid on semiannual basis)
c.
Time = 5 years or 10 semiannual periods
Yearly MARR (R) = 8%
Thus,
Semiannual MARR (r) = 8%/2 = 4%
Bond Worth today = Present value of coupon payments + present value of face value of bond
Bond Worth today = 500*( 1-1/(1+r)^10)/r + 10000/(1+r)^10
Bond Worth today = 500*(1-1/1.04^10)/.04 + 10000/1.04^10
Bond Worth today = $10811.09
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