1) Pendley Company is considering purchasing equipment. The equipment will produ
ID: 2380144 • Letter: 1
Question
1) Pendley Company is considering purchasing equipment. The equipment will produce the following cash flows: Year 1, $35,900; Year 2, $38,300; and Year 3, $49,900. Pendley requires a minimum rate of return of 9%.
What is the maximum price Pendley should pay for this equipment?
2) Kirby Railroad Co. is about to issue $257,000 of 8-year bonds paying a 8% interest rate, with interest payable semiannually. The discount rate for such securities is 12%.
How much can Kirby expect to receive for the sale of these bonds?
Please try to explain these, i've been working on both these questions for so long and can't calculate the right answer!
Explanation / Answer
Cash payback period = investment/annual cash flow = 441,560/53,200 = 8.3 years...Related Questions
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