13. A 12-year bond has a 9 percent annual coupon, a yield to maturity of 8 perce

Question

13. A 12-year bond has a 9 percent annual coupon, a yield to maturity of 8 percent, and a face value of $1,000. What is the price of the bond?

a. $1,469

b. $1,000

c. $   928

d. $1,075

e. $1,957

14. Tuttle Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it should be rejected.

WACC: 12.00%

Year                           0                1                2                3                4    

Cash flows           -$1,000       $350         $350         $350         $350

a. $77.49

b. $81.56

c. $63.05

d. $90.15

e. $94.66

15. Resnick Inc. is considering a project that has the following cash flow data. What is the project's payback?

Year                           0                1                2                3    

Cash flows             -$350         $200         $200         $200

a. 1.42 years

b. 1.58 years

c. 1.75 years

d. 1.93 years

e. 2.12 years

   16. Barry Company is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.

WACC: 12.00%

Year                           0                1                2                3                4                5    

Cash flows           -$1,100       $400         $390         $380         $370         $360

a. $250.15

b. $277.94

c. $305.73

d. $336.31

e. $369.94

Explanation / Answer

13) Yield to maturity= Annual interest+((Price-face value)/n)/(Price+Face value)/2

Therfore 0.08= 90+((x-1000)/12)/(x+1000)/2

Solving above we get price of the bond as 1075

14 Present Value of cash outflow =1000

   Present value of cash inflows = Annual cash flows * Present value annuity factor (12%,4Years)

   =350*3.037 i.e 1063.05

Hence NPV of the project =Present value of cash inflows-Present value of cash outflows

=1063.05-1000=63.05 NPV of the project hence project should be accepted

15) Payback period = Cash outflows / Annual Cash inflows

=350/200

Payback period of the project is 1.75 years or 1 year 9 months

16)NPV of the project = Present value of cash outflows - Present value of cash inflows

   Present value of cash outflows = 1100

Present value of cash inflows = cash inflow at year 1*present value factor (12%,Year1)+Cash inflow at year 2*present value factor (12%,year 2)+..................Cash inflow at year 5*present value factor (12%, Year 3)

=400*0.893+390*0.797+380*0.712+370*0.636+360*0.567

=1377.94

Hence Net Present Value of the project is 1377.94-1100=277.94

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