Calculate the total present value of the cash savings

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Problem 1 - On January 1, 2021, Rare Bird Ltd. purchased 10% bonds dated January 1, 2021, with a face amount of $41 million. The bonds mature in 2031 (10 years). For bonds of similar risk and maturity, the market yield is 9%. Interest is paid semi-annually on June 30 and December 31.

Required - Determine the price of the bonds at January 1, 2021.

Problem 2 - DON Corp. is contemplating the purchase of a machine that will produce cash savings of $38,000 per year for five years. At the end of five years, the machine can be sold to realize cash flows of $6,800. Interest is 10%. Assume the cash flows occur at the end of each year.

Required - Calculate the total present value of the cash savings.

Reference no: EM132818521

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