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

QUESTION

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 project’s 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 stock’s 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 investment’s 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?

ANSWER:

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