CHAPTER
USINGDISCOUNTEDCASHFLOWANALYSISTOMAKE
INVESTMENTDECISIONS
1. Cash Flows. A new project will generate sales of $74 million, costs of $42 million, and
depreciation expense of $10 million in the coming year. The firms tax rate is 35 percent.
Calculat

1
Valuing Bonds
FM/ IBF
Athar Iqbal
1. A 5-year bond with a coupon rate of 4% has a face value of $1000. What is the annual
interest payment?
2. A 3-year bond with 10% coupon rate and $1000 face value yield to maturity is 8% .
Assuming annual coupon payme

CHAPTER
NPV&OTHERINVESTMENTCRITERIA
1. NPV/IRR. Consider projects A and B:
Projec
t
A
B
Cash Flows, In Dollars
C0
C1
C2
NPV
30,000
50,000
21,00
0
21,00
0
21,00
0
21,00
0
+
$6,446
+
$7,272
Calculate IRRs for A and B. Which project does the IRR rule suggest

CHAPTER
PROJECTANALYSIS
1.
Sensitivity Analysis. Emperors Clothes Fashions can invest $5 million in a new plant for
producing invisible makeup. The plant has an expected life of 5 years, and expected sales
are 6 million jars of makeup a year. Fixed costs

CHAPTER
TIMEVALUEOFMONEY(CLASSEXERCISESII)
1. Jim Thomas borrows $70,000 at 12 percent interest toward the purchase of a
home. His mortgage is for 30 years.
a.
b.
How much will his annual payments be? (Although home payments are usually on
monthly basis,

CHAPTER
VALUINGSTOCKS
1. Dividend Yield. Favored stock will pay a dividend this year of $2.40 per share. Its
dividend yield is 8 percent. At what price is the stock selling?
2. Preferred Stock. Preferred Products has issued preferred stock with a $8 annua

CHAPTER
VALUINGBONDS
1. Bond Yields. If a bond with par value of $1,000 and a coupon rate of 8 percent is selling at a
price of $970, is the bonds yield to maturity more or less than 8 percent? What about the
current yield?
2. Bond Yields. A bond with par