Financial Planning

What is the cash flows for years 1 through 3?

XYZ company has asked you to evaluate the proposed acquisition of a new machine The machine’s price is $50,000, and it will be depreciated using straight-line over a 10 year basis even though they expect to keep for only 3 years

Purchase of the machine would require an increase in net working capital of $2,000 at the start of the project and this will be returned at the end of the project The machine would increase the firm’s before-tax revenues by $57,000 per year, but would also increase before-tax operating costs by $20,000 per year The machine is expected to be used for 3 years and then be sold for $40,000 The firm’s marginal tax rate is 40 percent, and the project’s cost of capital is 10 percent

What is the market price of a $1,000 face value bond if the current rate of interest is 129%?

How much will it cost the company to call in 1,000 of these bonds? Is it worth pursuing this strategy if your interest rate on a loan is 13%?

What is the current yield on a $1,000 bond with a 5 percent coupon if its market price is Instructions: Enter your responses as a percent rounded to two decimal places

(a) $900?

%

(b) $1,000?

%

(c) $1,100?

%

Solution: