Finance

1. Suppose the net income in the respective years is 600, 700, 820, 900, , and 970. Initial investment is $7000. Compute the Annual

Accounting Return on Investment.

2. Compute the yield to call for the FGH Company bond maturing in 10 years (8.5% coupon rate and a face value of $1000) with the call

provision of “after 6 at 119” and a market price of 895.

3. Compute the yield to maturing for a company bond maturing on October 12th, 2024 assuming today’s (2012) market price is 945 ( 7.5%

coupon rate, face value of $1000, and one coupon payment a year)

4. If the buyer’s preferred stock paid $148 a share and brokers charged a commission of 6%. Obtain the cost of the preferred stock to the

firm assuming an annual dividend of $4.

5. Consider a project with an initial investment of $111,800, that generates a net inome of $23,000 per year over life of 10 years. Obtain

the Average Accounting Return on Average Investment.

6. Ant Inc is considering a project to produce super ants. It’s estimated that the initial cost of the equipment will be $853K. It

estimates that the revenues each year over the 8 year life of the project will be $170K. The other yearly expenses will be $90,000. Ant

will finance $412,000 by loan with an interest rate of 7% per year. The working capital requirement is $378,000. Ant Inc uses straight

line depreciation and the equipment will have no salvage value at the end of its life. Assume a corporate-profits tax rate of 30%. Obtain

the initial investment.

7. A Corporation is considering a project that will require an initial investment of $258,000 and will generate cash flows of $45,000 for

6 years and then cash flows of $18,000 for another 20 years. The project will have a salvage value of $21,000. Compute the IRR.

8. Ant Inc is considering a project to produce super ants. It’s estimated that the initial cost of the equipment will be $753K. It

estimates that the revenues each year over the 7 year life of the project will be $170K. The other yearly expenses will be $80,000. Ant

will finance $412,000 by loan with an interest rate of 7% per year. The working capital requirement is $268,000. Ant Inc uses straight

line depreciation. Assume a corporate-profits tax rate of 36% and assume that at the end of its life the project equipment can be sold for

$384K. Obtain the annual cash flows of the first few periods.

9. Consider a project with the following cash flows: -1400, -7600, and 4180 at time 0,1,2 respectively. Obtain the PI if the cost of

capital is 12%.

10. A project costs $115k today. If a cash flow of $257K will be received at the end of year 6, what is the IRR?

11. Ant Inc is considering a project to produce super ants. It’s estimated that the initial cost of the equipment will be $753K. It

estimates that the revenues each year over the 8 year life of the project will be $370K. The other yearly expenses will be $190,000. Ant

will finance $412,000 by loan with an interest rate of 7% per year. The working capital requirement is $268,000. Ant Inc uses straight

line depreciation and the equipment will have no salvage value at the end of its life. Assume a corporate-profits tax rate of 28. Obtain

the aanual cash flows of the first 7 years.