A bond has a coupon rate of 7% and has 5 years until maturity. If the current yield to maturity is 5%, what is the price of the bond? What is the amount of the annual interest payment paid to the bondholder?
Solution
Given,
For bonds, the face value is customarily $1,000.
Required?
Current price of bond and the amount of interest payment paid to the bondholder
Solution
An investor buys a 10-year, 7% coupon bond for $990, holds it for 1 year, and then sells the bond for $980. What was the investor's rate of return?
Delegate your assignment to our experts and they will do the rest.
Given,
Required?
The investor’s rate o return?
What is the price of a zero coupon bond with a 20 year maturity and a yield to maturity of 6% and a par value of $100,000?
Given,
Chapter 7 Valuing Stock
Arts & Crafts will pay a dividend of $3 per share in 1 year. The stock sells for $50 per share, and provides a return of 12%. What is the growth rate of the company’s dividends?
Solution
Given,
Required?
Growth rate of the company
Making g the subject of the formula, the formula becomes,
What should be the current price of a stock if the expected dividend is $3, the stock has a required return of 8%, and a constant dividend growth rate of 4%?
Solution
Given,
Required?
Current price of stock
Since the growth of the dividend is constant,
Chapter 8 - Net Present Value
What is the NPV for a 3 year project with an initial investment of $100,000, an opportunity cost of capital of 6% and the following cash flows?
Yr. 1 - $35,000
Yr. 2 - $40,000
Yr. 3 - $45,000
| Initial Investment |
$100,000 |
|
| Opportunity Cost of Capital |
6% |
|
| Year | Cash flows | Present Value (PV) |
|
1 |
$35,000 |
$33,019 |
|
2 |
$40,000 |
$35,600 |
|
3 |
$45,000 |
$37,783 |
| Total PV |
$106,402 |
|
| Net Present Value (NPV) |
$6,402 |
Chapter 9 – Operating Cash Flow
A new project is expected to generate annual sales of $74 million, annual expenses of $42 million, and an annual depreciation expense of $10 million. The firm's tax rate is 35%. Calculate the OCF (Operating Cash flow) for the year by using any of the three methods discussed in the chapter 9.
Solution
| Income Statement | Sales |
$74 |
| Annual Expenses |
$42 |
|
| Annual Depreciation Expense |
$10 |
|
| Tax Rate |
35% |
|
| EBIT |
$22 |
|
| Tax |
$7.7 |
|
| Profit or Net Income |
$14.30 |
|
| Method 1 | Dollars in minus Dollars Out | |
| Operating Cash Flow | Revenue-Cash Expenses-Taxes | |
| Operating Cash Flow |
$24.3 |
|
| Method 2 | Adjusted Accounting Profits | |
| Operating Cash Flow | After Tax Profit+Depreciation | |
| Operating Cash Flow |
$24.30 |
|
| Method 3 | Depreciation Tax Shield Approach | |
| Operating Cash Flow | (Sales -Expenses)(1-t)+(Depreciation(t) | |
| Operating Cash Flow |
$24.30 |
