Calculate the effective annual yield on the bond

Reference no: EM133722921

CORPORATE FINANCE MANAGEMENT

Question 1

An investor is planning to buy an asset which will cost 5000000. The asset has a useful life of 5 years and will have a scrap value of 500000 at the end of the fifth year. There is a 60% chance that the asset will bring in additional revenue of 1500000 per year and a 40% chance that the asset will bring in additional revenue of 1200000 per year for five years and will incur additional costs of 300000 per year for five years. The machine will also require additional investment in working capital of 600000 on installation. The tax rate is given as 40%. Assume that depreciation is provided on straight line basis. The investors required rate of return is given as 10%:

Required
a. Determine cash flows from this project.
b. Determine the NPV, IRR,PI and PBP of the project.

Question 2

Company management normally encounterssome challenges in the process of management.

Discuss five challenges of agency theory and how these challenges can be overcome(10mks)

Question 3

Dura coat Industries bond has a 10 percent coupon rate and a $1000 face value. Interest is paid semiannually, and the bond has 20 years to maturity. If investors require a 12% yield.
i. Calculate the bond's value?
ii. Calculate the effective annual yield on the bond?

Reference no: EM133722921

Questions Cloud

Significance of the septuagint edition of the hebrew bible : Discuss the historical significance of the Septuagint edition of Hebrew Bible. Describe the work of Jerome in producing a new Latin translation of the Bible.

How to strengthen the pancasila ideology as an effort : Conduct a study on how to strengthen the Pancasila ideology as an effort to strengthen the insight of Indonesian ideology related to fostering national resilien

What the community agrees to be permissible : What the community agrees to be permissible or impermissible behavior as it does on the letter of the law

Appropriate authority and collaborates to rectify situation : Nurse A in a medical ward notices an error made by a colleague. The nurse reports the error to appropriate authority and collaborates to rectify situation

Calculate the effective annual yield on the bond : Determine cash flows from this project and Determine the NPV, IRR,PI and PBP of the project - Calculate the effective annual yield on the bond

What benefit to all social classes was introduced : What benefit to all social classes was introduced with the Social Security Act of 1965 and now accounts for around 50% of the U.S. government budget?

Definition of marriage as a union between a man and a woman : Similarly, if their worldview is shaped by a belief in the traditional definition of marriage as a union between a man and a woman.

Discuss if the irr rule for making budgetary decisions : Determine the IRRs for this deal (Hint: There are two IRRs for this problem). Discuss if the IRR rule for making budgetary decisions can be used in this case

What level of government does this amendment limit : What was the historical context of the passage of this amendment? What level of government does this amendment limit? What prohibitions did it create?

User Account

All Pages