1. (Bond valuation) The 8-year $1,000 par bonds of Vail Inc. pay 12 percent interest. The market's required yield to maturity on a comparable-risk bond is 7 percent. The current market price for the bond is $1,130.
2. What is your yield to maturity on the Vail bonds given the current market price of the bonds? (Round to two decimal places.)
3. What should be the value of the Vail bonds given the yield to maturity on a comparable risk bond? (Round to the nearest cent.)
4. Should you purchase the bond at the current market price?

Question 9

1. (Annuity payments) Ford Motor Company's current incentives include 5.7 percent APR financing for 72 months or $1,100 cash back on a Mustang. Let's assume Suzie Student wants to buy the premium Mustang convertible, which costs $34,000, and she has no down payment other than the cash back from Ford. If she chooses the $1,100 cash back, Suzie can borrow from the VTech Credit Union at 7.7 percent APR for 72 months.
2. If Suzie chooses 5.7 percent APR financing for 72 months to buy the premium Mustang convertible, which costs $34,000 = PMT(62.632529), what will her monthly payment be? (Round to the nearest cent.)
3. If Suzie chooses $1,100 cash back to buy the premium Mustang convertible and borrows $32,900 from the VTech Credit Union at 7.7 percent APR for 72 months, how much will her monthly payment be?
4. Which option should Suzie Student choose?

Question 10

1. (Annuity interest rate) Your parents just called and would like some advice from you. An insurance agent just called them and offered them the opportunity to purchase an annuity for $14,217.56 that will pay them $2,500 per year for 20 years. They do not have the slightest idea what return they would be making on their investment of $14,217.56. What rate of return would they be earning? (Round to two decimal places.)

Question 11

1. (Cost of debt) Sincere Stationery Corporation needs to raise $451,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 11.1 percent with interest paid semiannually and a 15-year maturity. Investors require a rate of return of 9.6 percent.
2. Compute the market value of the bonds.
3. How many bonds will the firm have to issue to receive the needed funds?
4. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?

Question 12

1. (Cost of preferred stock) The preferred stock of Walter Industries Inc. currently sells for $35.67 a share and pays $3.49 in dividends annually. What is the firm's cost of capital for the preferred stock?

Question 13

1. (Weighted average cost of capital) The target capital structure for Jowers Manufacturing is 52 percent common stock, 10 percent preferred stock, and 34 percent debt. If the cost of common equity for the firm is 20.8 percent, the cost of preferred stock is 12.5 percent, and the before-tax cost of debt is 10.4 percent, what is Jowers' cost of capital? The firm's tax rate is 34 percent.

Question 14

1. (Weighted average cost of capital) In the spring of last year, Tempe Steel learned that the firm would need to re-evaluate the company's weighted average cost of capital following a significant issue of debt. The firm now has financed 33 percent of its assets using debt and 57 percent using equity. Calculate the firm's weighted average cost of capital where the firm's borrowing rate on debt is 7.9 percent, it faces a 34 percent tax rate, and the common stockholders require a 19.7 percent rate of return.