/1 a) Compute the price ofa bond with SI000face value, 8% coupon rate, and 10 ye
ID: 2756719 • Letter: #
Question
/1 a) Compute the price ofa bond with SI000face value, 8% coupon rate, and 10 years to maturity when the required rate of return is 12%.[ Price = PMT x PVAFr," + FV x PVF, n] b) What is its yield-to-maturity if the bond is now selling at $1,000? 2. BSI will pay a common stock dividend of $3.30 (Di) at the end of the year. The required rate of retum on the stock is 15% and the dividend will grow at a constant rate of 5%. Compute: a) the stock price [P·D/(r-g), b) required rate of return when its price is 30 [r (D/P) + gl. c) the cost of capital (koe) when new stock is selling for $35 and flotation cost (F) is 10%, the constant growthrate is 5%.(knew-(D/P(1-F))+g). Given investors' required rate of return (ra) on a bond is 10%. Compute the cost of capital (kd) when the firm is 3. subject to 40% tax rate (T) and flotation cost (F) is 5%. Use k x (I- Ty(I-F)]. 4. Capital Cost (k) Weight (w) 6% 10% 20% .3 .1 .6 Given the capital structure, compute: a) the WACC (kw) correctly, [k.- (k, x w), b) if each capital is given equal weights, ie.,1/3 each. Bond Preferred Common 5. Given the cash flow of a project below: Years 1-10 Year 0 ($5,019) $1,000 a) Compute NPV = [PV ofbenefit-PV of cost] when the cost of capital (k) is 12%, b) find IRR using the equation [PV of cost-PMT x PVAFUJ. c) would you accept the project? Why or why not? The following is the cash flow from investment in a permanent working capital Year 0 Years 1-o ($6,000)$480 6. Compute: a) NPV when cost of capital (r) is 7% (PV = PMT/r), b) IRR (r) . PMT/PV), e) net annual benefit (annual benefit- annual cost).Explanation / Answer
Answer 1
price => 80* 5.65 + 1000 * 0.322
Price => $774
YTM => [ 80 + ( 1000 - 774)/10] / [ ( 1000 + 774) /2]
=> (102.6/887)*100
YTM => 11.57%
Answer 2
a
stock price => 3.30 / (15%-5%)
Stock Price => $33
b
Required Rate of return => (3.30 /33) +0.5
Required Rate of return => 16%
c
Cost of capital => [ 3.3 /35(1-10%) ] + 0.05
Cost of capital => 15.47%
Answer 3
Cost of Capital => [10%( 1 - 40%) ]/ ( 1-5%)
Cost of Capital => 6.32%
Answer 4
a
WACC => [(0.06 *0.3) + (0.10 *0.1) + (0.20 * 0.6) ] *100
WACC => 14.8%
b
WACC => [(0.06 *0.33) + (0.10 *0.33) + (0.20 * 0.34) ] *100
WACC => 12.08%
Answer 5
NPV => ( 1000 * 5.65 ) - 5019
NPV => $ 631
IRR => 5019 = 1000* PVAF(r,10)
IRR => 15%
c
We should accept the project becaue NPV is possitive and even IRR is greater than cost of capital hence it is profitable to accept the project.
Answer 6
a
Present value => 480 / 7%
Present Avlue => $6857
b
IRR => 480 / 6857
IRR => 7%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.