8) (3pts) Calculate the bond price per unit-simco-rat face value of bond- $1,000

Question

8) (3pts) Calculate the bond price per unit-simco-rat face value of bond- $1,000. debt yield of the following xe erer vz corporation bond (held to Maturity) Current (sman- ,o o o Jea Tn: 3.aa #6. (10pts) You effects of the projects that your work) tasted the incremental eteg, fo.pro.. earnings for a project. Now you considered the indirect may affect the profits of other business activities of the same firm (Show incremental Table before the project externalities Year 3 Year 4 Year1 Year 2 26,000 (9,500) Sales 26,000 (9,500) Cost of Goods (9,500)(9,500) Sold Table after the project externalities: 15% of sales come from customers who would have purchased an old product if the new products were not available. (100,000 units = new product sales, $100 per units old product price per unit, and $60 per unit - old product unit cost) Year 4 Year 3 Year 2 Year 1 Sales (Spts) Cost of Goods Sold (5pts)

Explanation / Answer

Project Externalities – Indirect effects of the project that may affect the profits of other business activities of the firm. Cannibalization is when sales of a new product displaces sales of an existing product.

• Project Externalities – In the project example, 15% of sales come from customers who would have purchased an Old one if New were not available.

Because this reduction in sales of the Old product sale is a consequence of the decision to develop New product, we must include it when calculating New product incremental earnings.

Project Cannibalization • Old product wholesales for $100, so the expected loss in sales are: – 15% x 100,000 x $100/unit = $1.5 million

• Incremental cost of goods sold is – 15% x 100,000 x $60=$9 million  

Gross Profit After Externalities Thousands Year 1 Year 2 Year 3 Year 4 Sales            24,500            24,500            24,500            24,500 Cost Of Sales            (8,600)            (8,600)            (8,600)            (8,600) Gross Profit            15,900            15,900            15,900            15,900

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