2 3 Paul Cervantes has just purchased some equipment for his landscaping business. He plans to pay the following amounts at the end of each of the next 5 years: $10450, $8500, $9675, $12500, and $11635. If he uses a discount rate of 10.875 per cent, what is the cost of the equipment he purchased today? An investment opportunity requires a payment of $750 for 12 years, starting a year from today. If your required rate of return is 8 per cent, what is the value of the investment today? Christine Suela plans to invest $25000 a year for the next 7 years in an investment that will pay her a rate of return of 11.4 per cent. He will invest at the end of each year. How much money will Christine have at the end of 7 years? Lopez Information Systems is planning to issue 10-year bonds. The going market rate for such bonds is 8.125 percent. Assume that coupon payments will be semi-annual. The firm is trying to decide between issuing an 8 percent coupon bond or a zero-coupon bond. The company needs to raise 1 million. What will be the price of the 8 percent coupon bonds? b. How many coupon bonds would have to be issued? What will be the price of the zero-coupon bonds? d. How many zero-coupon bonds will have to be issued? Kintel, Inc., wants to raise $1 million by issuing six-year zero coupon bonds with a face value of $1 000. Their investment banker informs them that investors would use an 11.4 per cent discount rate on such bonds. At what price would these bonds sell in the marketplace? How many bonds would the firm have to issue to raise $1 million? Assume annual compounding for payments. Cerebra Construction is expanding very fast and expect to grow at a rate of 25 per cent for the next four years. They recently declared a dividend of 3.60 but do not expect to pay any dividends for the next three years. In year 4, they intend to pay a 5 dividend and thereafter grow it at a constant-growth rate of 6 per cent. The required rate of return on such shares is 20 per cent. a. Calculate the present value of the dividends during the fast growth period. b. What is the price of the shares at the end of the fast growth period (PA)? What is the shares price today? d. Would today's share price be driven by the length of time you intend to hold the shares? c. 5 6 c