I need an answer with an explanation to #3. Thanks.

Assignment #2 - Corporate Financial Decisions and Valuation of Fixed Income Securities 1. (30) PCs Forever is a company that produces personal computers. It has been in operation for two years and is at capacity. It is considering an investment project to expand its production capacity. The project requires an initial outlay of $1,300,000: $1,000,000 for new equipment with an expected life of five years and $300,000 for additional working capital. The selling price of its PCs is $1,500 per unit, and annual sales are expected to increase by 2,000 units as a result of the proposed expansion. Annual fixed costs excluding depreciation of the new equipment will increase by $150,000, and variable costs are $1300 per unit. The new equipment will be depreciated over five years using the straight-line method with a zero salvage value. The hurdle rate for the project is 10% per year, and the company pays income tax at the rate of 35%. (a) (10) What is the projects NPV? (b) (10) What is the IRR of the project? Shall the project be accepted or rejected? (c) (10) At what volume of sales would the NPV just break even? 2. (20) Kitchen Supplies, Inc. must replace a machine in its manufacturing plant that will have no salvage value. It has a choice between two models. The first machine will last 6 years and will cost $480,000. It will generate an annual cost savings of $60,000. Annual maintenance costs will be $30,000. The machine will be fully depreciated using the straight-line depreciation method and will have no salvage value. The second machine will last 8 years and will cost $720,000. It will generate an annual cost savings of $75,000. This machine will also be fully depreciated using the straight-line depreciation method, but is expected to have a salvage value of $64,000 at the end of the eighth year. The annual maintenance cost is $25,000. Revenues in each case are expected to be the same. The annual tax rate is 20% and the cost of capital is 8%. Which machine should the company purchase? 3. (20) The Morgan Corporation has two different bonds currently outstanding. Bond M has a face value of $40,000 and matures in 18 years. The bond makes no payments for the first four years, then pays $400 every three months over the subsequent six years, and finally pays $600 every three months over the last eight years. Bond N also has a face value of $40,000 and a maturity of 18 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 12 percent compounded quarterly, what is the current price of Bond M? Of Bond N? 4. (20) Bond P is a premium bond with a 8 percent coupon. Bond D is a 3 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 5 percent, and have ten years to maturity. What is the current yield for Bond P? For Bond D? If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond P? For Bond D? What is the holding period return of the first year for each bond? Explain your answers and the interrelationship among the various types of yields. 5. (10) Pembroke Co. wants to issue new 15-year bonds for some much-needed expansion projects. The company currently has 6 percent coupon bonds on the market that sell for $1,337, make semiannual payments, and mature in 15 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? Note: Throughout our course, all bonds are assumed to have face value of $1,000, unless otherwise specified. 1