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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
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
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?
LG4 6–13 Valuation of assets Using the information provided in the following table, find
the value of each asset.
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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