You are analyzing a project and have developed the followingestimates. The depre

Question

You are analyzing a project and have developed the followingestimates. The depreciation is $72,000 a year and the tax rate is35 percent. What is the operating cash flow?

Unit Sales 2,900 Price per Unit $220 Variable Costs per Unit $160 Fixed Costs $28,500

a. $119,775
b. $138,275
c. $153,075
d. $164,775
e. $178,275

A 9 percent bond has a yield to maturity of 6.75 percent, 10 yearsto maturity, a face value of $1,000, and semiannual interestpayments. What is the amount of each coupon payment?

a. $33.75
b. $45.00
c. $50.00
d. $67.50
e. $90.00

Gordon Industries has 6 percent coupon bonds outstanding with aface value of $1,000 and a market price of $959.21. The bonds payinterest annually and have a yield to maturity of 6.5 percent. Howmany years will it be until these bonds mature?

a. 6.0 years
b. 7.5 years
c. 10.0 years
d. 12.0 years
e. 13.0 years
Unit Sales 2,900 Price per Unit $220 Variable Costs per Unit $160 Fixed Costs $28,500

Explanation / Answer

Calculating Operating Cashflows: Sales (2,900 * $220) $638,000 Less: Variable Cost (2,900 * $160) $464,000           FixedCost $28,500 $492,500 Earnings Before Depreciation, Interest andTaxes $145,500 Less: Deprecitaion $72,000 Earnings Before Taxe (EBT) $73,500 Less: Tax (35%) $25,725 Net Income $47,775 Operating Cash flows = $47,775+$72,000 $119,775 Semi Annual Coupon Payment ($1,000 * 9/2 %) $45 . Calculating Number of years toMaturity (Using Ms-Excel "NPER"Function): Interest rate (Rate) 6.50% Annual Coupon Payment (PMT) $60 Current Market Value of the Bond (PV) -$959.21 Face Value (or) Future Value of the bond (FV) $1,000 Number of years to Maturiyt (NPER) 12.00 Number of years toMaturity 12.0 years Calculating Operating Cashflows: Sales (2,900 * $220) $638,000 Less: Variable Cost (2,900 * $160) $464,000           FixedCost $28,500 $492,500 Earnings Before Depreciation, Interest andTaxes $145,500 Less: Deprecitaion $72,000 Earnings Before Taxe (EBT) $73,500 Less: Tax (35%) $25,725 Net Income $47,775 Operating Cash flows = $47,775+$72,000 $119,775 Semi Annual Coupon Payment ($1,000 * 9/2 %) $45 . Calculating Number of years toMaturity (Using Ms-Excel "NPER"Function): Interest rate (Rate) 6.50% Annual Coupon Payment (PMT) $60 Current Market Value of the Bond (PV) -$959.21 Face Value (or) Future Value of the bond (FV) $1,000 Number of years to Maturiyt (NPER) 12.00 Number of years toMaturity 12.0 years

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