eng111_discussion_week7_questions_and_answers

eng111_discussion_week7_questions_and_answers - stock cost...

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ENG 111 Discussion Week 7 Winter 2009 Q1. Stealers Wheel Software has 8.4 % coupon bonds on the market with 9 years to maturity. The bonds make semiannual payments and currently sell for 104 percent of par. What is the current yield on the bonds? The YMT? The effective annual yield? ANS: Q2. Petty Co. wants to issue new 20-year bonds for some projects. The company currently has 8 percent coupon bonds on the market that sell for $1095. It makes semiannual payments and matures in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell them at par? ANS: Q3. Valuing preferred stock. Mark bank just issued some new preferred stock. The
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issue will pay a $9 annual dividend in perpetuity, beginning 6 years from now. If the market requires a 7% return on this investment, how much does a share of preferred
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Unformatted text preview: stock cost today? ANS: Q4. Consider two mutually exclusive new projects. Assume the discount rate is 15%. Project A takes an initial investment of 100000 at time 0. It will generate cash flow of 40000 per year in the next five years. The cash flow will be terminated at year 6. Project B takes initial investment of 30000 at time 0. The cash flow at year 1 is 20000. In each subsequent year, the cash flow will grow at 15% per year. The cash flow will be terminated at year 6. The investments and cash flows are shown in the following table. Year Porject A Project B 0 -100000 -30000 1 40000 20000 2 40000 23000 3 40000 26450 4 40000 30418 5 40000 34980 Compute their NPV, IRR, Incremental IRR, PI. ANS:...
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eng111_discussion_week7_questions_and_answers - stock cost...

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