A what dollar amount of interest per bond can an

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Unformatted text preview: nd can an investor expect to receive each year from Charter Corp.? b. What is Charter’s total interest expense per year associated with this bond issue? c. Assuming that Charter is in a 35% corporate tax bracket, what is the company’s net after-tax interest cost associated with this bond issue? LG3 6–11 Bond quotation Assume that the following quote for the Financial Management Corporation’s $1,000-par-value bond was found in the Wednesday, November 8, issue of the Wall Street Journal. Fin Mgmt 8.75 05 8.7 558 100.25 0.63 Given this information, answer the following questions. a. On what day did the trading activity occur? b. At what price did the bond close at the end of the day on November 7? c. In what year does the bond mature? d. How many bonds were traded on the day quoted? e. What is the bond’s coupon interest rate? f. What is the bond’s current yield? Explain how this value was calculated. g. How much of a change, if any, in the bond’s closing price took place between the day quoted and the day before? At what price did the bond close on the day before? LG4 6–12 Valuation fundamentals Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,200 at the end of each year, and assume that you can sell the car for after-tax proceeds of $5,000 at the end of the planned 5-year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 6% after taxes. 300 PART 2 Important Financial Concepts a. Identify the cash flows, their timing, and the required return applicable to valuing the car. b. What is the maximum price you would be willing to pay to acquire the car? Explain. LG4 6–13 Valuation of assets Using the information provided in the following table, find the value of each asset. Cash flow Asset End of year Amount Appropriate required return A 1 $ 5,000 18% 2 5,000 3 5,000 B 1 through ∞ $ 300 15% C 1 $ 0 16% 2 3 0 4 0 5 D 0 35,000 1 through 5 $ 1,500 6 1 $ 2,000 2 3,000 3 5,000 4 7,000 5 4,000 6 E 12% 8,500 1,000 14% LG4 6–14 Asset valuation and risk Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3,000 per year at the end of years 1 through 4 and $15,000 at the end of year 5. Her research indicates that she must earn 10% on low-risk assets, 15% on...
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This document was uploaded on 01/19/2014.

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