Question
Hard Spun Industries (HSI) has a project that it expects will produce a cash flow of $3.2 million in 14 years. To finance the project,
Hard Spun Industries (HSI) has a project that it expects will produce a cash flow of $3.2 million in 14 years. To finance the project, the company needs to borrow $2.4 million today. The project will also produce intermediate cash flows of $240,000 per year that HSI can use to service coupon payments of $120,000 every six months. Based on the risk of this investment, market participants will require a 9.0% yield. If HSI wishes a maturity of 14 years (matching the arrival of the lump sum cash flow), what does the face value of the bond have to be?
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