Reference no: EM132949250

1) Your company borrowed $140,000 from the bank. The loan agreement stated that you will pay this loan in 36 equal monthly payments over the coming three years. Assume the bank is charging you a rate of 4.8% per year. Determine the monthly payment. What is the outstanding balance of the loan after 1 year (12 payments) assuming all payments were made on schedule?

2) As a member of East Corporation's financial staff, you are asked to estimate the annual operating cash flow for a proposed project your company is considering for investment. Your assistant provided with the following information:

Sales revenues, each year $45,000;

Cost of Goods Sold $14,000

Operating cost other than depreciation $3,000;

Interest expense $4,000

Depreciation $10,000

Tax rate 35%

3) Two of your colleagues were arguing about the relevance of depreciation expense when assessing a capital budgeting project. One of them said that depreciation is a non-cash expense and since capital budgeting talks about cash flow, we shouldn't consider depreciation expense in our calculations. Do you agree with that? Explain to them whether it is relevant or not? When?

4) Six years ago you bought a bond that has a life of 15 years. The bond has a face value of $1,000 & a coupon rate of 5 %, paid annually. The bond had a yield to maturity then of 6%. Today the yield to maturity decreased to 4%. Calculate:

i) The price of the bond when you bought it six years ago.

ii) The price of the bond today.

iii) Calculate the annual rate of return over the holding period if you sell the bond today.

5) Mead Corporation bonds mature in 6 years and have a current market price of $922.23. The par value of the bonds is $1,000. The bonds have a 10% coupon rate and pay interest on a semi-annual basis. What is the yield to maturity of the bond?

6) The Inventive Co. is considering a new project. This project requires an initial cash investment of $70,000. The project will generate cash inflows of $10,500 in the first year. Then, the project will do nothing for two years, after which time cash inflows of $35,000 will be generated for four years. Should Inventive Co. undertake the new project if its cost of financing was 12%?

7) The HIJ Co. bond has a current price of $895, a maturity value of $1,000, and matures in 5 years. If interest is paid annually and the bond is priced to yield 8%, what is the bond's annual coupon rate?

8) Safeco Company's current assets total to $20 million versus $10 million of current liabilities, while Risco Company's current assets are $10 million versus $20 million of current liabilities. Both firms would like to "window dress" their end-of-year financial statements, and to do so they tentatively plan to borrow $10 million on a short-term basis and to then hold the borrowed funds in their cash accounts. What impact would that have on both companies ratios?