Fin202 Corporate Finance|Project Assessment Answer

Part A: A $1,000 face value bond currently has a yield to maturity of 7.14% and 6.95% coupon rate. The bond matures in 16 years and pays interest semiannually. She wants to work out the current price of this bond. Part B: She is also considering another investment that will pay $3,250 a year for 8 years, starting 1 year from today. Calculate the maximum amount she needs to pay for this investment if she wants to achieve 8.0% return Case Two:  ABC Pty Ltd has the following two projects, and they are mutually exclusive projects. The required rate of return is 11%. The company has recorded the following cash flows for four years. Year Cash Flow (A) Cash Flow (B) 0 −$ 50,000 −$ 60,000 1 6,000 7,000 2 9,000 12,000 3 20,000 22,000 4 25,000 20,000 Work out the payback for both projects Calculate NPV for both projects Which project will you pick? Explain. Case Three:  Kevin owes $3,990 on a Visa card with an APR of 13.9%. He currently pays $60 for the monthly payment. How much more will it cost him to pay off this balance if he wants to change the monthly payments from $60 to $50? Assume he does not have any other purchases. Case Four: XYZ Pty Ltd is considering to purchase a new machine. The cost of new machine is $428,000, and it will be depreciated using straight-line depreciation method to zero over six-year lifetime. The pretax resale value is $215,000. The new machine will save $148,000 before taxes per year and reduce working capital by total of $46,000 at the beginning of the project. Working capital will revert to normal at the end of the project. Given the tax rate is 34%, evaluate IRR for this project.