Question 1 - (2 point) You are the financial manager at a company and have a $1,
ID: 2711033 • Letter: Q
Question
Question 1 - (2 point) You are the financial manager at a company and have a $1,500,000 investment budget. Which of the following project(s) would you recommend? You may select more than one project. (Hint: Think Profitability Index)
PV of Cash Flow Initial Investment NPV Profitability Index
Project A: $1,275,000 $1,000,000 $275,000 $0.275
Project B: 550,000 400,000 150,000 0.375
Project C: 800,000 600,000 200,000 0.333
Project D: 650,000 500,000 150,000 0.300
Project E: 1,935,000 1,500,000 435,000 0.290
Which is the best answer? ________________________
Smith Corporation has a $1,000 par value bond outstanding paying annual interest of 6% (coupon rate). The bond matures in 15 years. The present yield to maturity for this bond is 5%. Calculate the annual coupon payment (annual interest payment) and current price of the bond using annual compounding.
What is the annual coupon payment?______________________
What is the current price of the bond?______________________
Explanation / Answer
Project c and Project B and Project D are best as they have highest NPV Projects NPV Working notes Project E 435,000.00 Project A and Project B 425,000.00 275000 + 150,000 Project c and Project B and Project D 500,000.00 200,000 +150,000 +150,000 Statemnet showing Price or Intrinsic Value Particulars Time PVf @5% Amount PV Cash inflows (Interest) 1.00 0.9524 60.00 57.14 Cash inflows (Interest) 2.00 0.9070 60.00 54.42 Cash inflows (Interest) 3.00 0.8638 60.00 51.83 Cash inflows (Interest) 4.00 0.8227 60.00 49.36 Cash inflows (Interest) 5.00 0.7835 60.00 47.01 Cash inflows (Interest) 6.00 0.7462 60.00 44.77 Cash inflows (Interest) 7.00 0.7107 60.00 42.64 Cash inflows (Interest) 8.00 0.6768 60.00 40.61 Cash inflows (Interest) 9.00 0.6446 60.00 38.68 Cash inflows (Interest) 10.00 0.6139 60.00 36.83 Cash inflows (Interest) 11.00 0.5847 60.00 35.08 Cash inflows (Interest) 12.00 0.5568 60.00 33.41 Cash inflows (Interest) 13.00 0.5303 60.00 31.82 Cash inflows (Interest) 14.00 0.5051 60.00 30.30 Cash inflows (Interest) 15.00 0.4810 60.00 28.86 Cash inflows (Maturity Amount) 15.00 0.4810 1,000.00 481.02 Intrinsic Value of Bond or Current Bond Price 1,103.80
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.