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Corporate financial analyst

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Problem: Therese Andrews has just been hired as a corporate financial analyst and has received her first assignment. Therese is to take the $5 million in cash received from a recent divestiture and use part of these proceeds to retire outstanding debt. The current interest rate is 6 percent.

a. The company has asked Therese to retire a perpetual bond that pays $150,000 each year. How much of the available cash will be used to retire this bond (i.e., what is the present value of the bond?)

b. The company will also be making a payment of $1 million in 5 years to pay off an additional debt. How much cash needs to be set aside today to make this payment?

c. Any remaining cash will be paid out to shareholders as a ten-year annuity. What annual payments will the company be able to make?

Reference no: EM132466188

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