Questionakayak plc is closing down its factory which will

Reference no: EM13380907

Question:

a) Kayak Plc is closing down its factory which will make all the workers redundant. Kayak's CEO is enraged to learn that the firm must continue to pay for workers' health insurance for 4 years. The cost per worker next year will be £2,400. The inflation rate is expected to be 4% per year and the health costs are expected to increase 3 percentage points faster than inflation. The nominal discount rate is 10%. What is the present value of this obligation?

b) You are to receive cash payments of £1,000 at the end of each of the next three years. Assuming a nominal discount rate of 7 percent, what is the present value of these cash flows? If the rate of inflation is 2 percent in years one and two and 3 percent in year 3, what are the values of these cash flows in real terms and what are the real discount rates for years one, two, and three? Show that discounting real cash flows using real discount rates gives the same present value as discounting nominal cash flows at a nominal discount rate.

c) A two-year and a five-year bond both have coupon rates of 7%. Both bonds are currently selling at par. How much does the price of each bond change if the interest rates fall to 5%? Explain the difference in the price change for these bonds?

Reference no: EM13380907

Questions Cloud

A consider the following companiesif the market : a consider the following companiesif the market capitalisation rate for each share is 8 which companys share is the

Amodigliani inc is a company that operates in a world with : amodigliani inc. is a company that operates in a world with perfect capital markets including no taxation. its annual

Question a over the past three years year 1 to year 3 the : question a over the past three years year 1 to year 3 the stocks of two companies one plc and two plc generated annual

A rank the following alternatives in terms of present value : a rank the following alternatives in terms of present value assuming a discount rate of 8 percent.i a growing

Questionakayak plc is closing down its factory which will : questionakayak plc is closing down its factory which will make all the workers redundant. kayaks ceo is enraged to

1 there has been a lot of discussion about adding : 1 there has been a lot of discussion about adding international securities to a portfolio. please discuss the positive

Part one external funding requirementyour company martin : part one external funding requirementyour company martin industries inc. has experienced a higher than expected demand

1 financial market is expecting a period of intense growth : 1. financial market is expecting a period of intense growth and has decided to retain more of its earnings to help

1 mega industries corporation has eighteen years of a bond : 1. mega industries corporation has eighteen years of a bond outstanding to maturity an 8.25 nominal coupon with

User Account

All Pages