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bonds

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Question

A. Several years ago, Castles in Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 7.6%.

Now, with 8 years left until the maturity of bonds, the company has run into hard time and the yield to maturity on the bonds has increased to 15%. What is the price of the bond now? (Assume semiannual coupon payments).

B. Supposed that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 85% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?

 
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sales

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Question

A project currently generates sales of $17 million, variable costs equal 40% of

sales, and fixed costs are $3.4 million. The firm’s tax rate is 30%. Assume all sales and expenses are cash items.

a. What are the effects on cash flow, if sales increase from $17 million to $18.7 million? (Input the amount as positive value. Enter your answer in dollars not in millions.)

b. What are the effects on cash flow, if variable costs increase to 45% of sales? (Input the amount as positive value. Enter your answer in dollars not in millions.)

 
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profitability index

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Question

What is the profitability index of a project that costs $10,000 and provides cash flows of $3,900 in years 1 and 2

and $5,900 in years 3 and 4. The discount rate is 9%. ( Do not round intermediate calculations. Round your answer to 4 decimial places.)

 
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pound

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Question

In April 2016 a pound of apples cost $1.54, while oranges cost $1.18. Three years earlier the price of apples was

only $1.33 a pound and that of oranges was $1.04 a pound.

a. What was the annual compound rate of growth in the price of apples? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. What was the annual compound rate of growth in the price of oranges? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. If the same rates of growth persist in the future, what will be the price of apples in 2030? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d. What about the price of oranges? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

An engineer in 1950 was earning $6,400 a year. In 2015 she earned $84,000 a year. However, on average, prices in 2015 were higher than in 1950. What was her real income in 2015 in terms of constant 1950 dollars? Use the data in Table 5.8. (Round your answer to 2 decimal places.)

 
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