Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond with semiannual payments has 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 10 percent. (Use a Financial calculator to arrive at the answers. Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What is the current price of the bonds? Current price $ b. By what percent will the price of the bonds increase between now and maturity? Price increases by 1% c. What is the annual compound rate of growth in the value of the bonds? Annual compound rate % The Suboptimal Glass Company uses a process of capital rationing in its decision making. The firm's cost of capital is 10 percent. It will Invest only $79,800 this year. It has determined the IRR for each of the following projects: Internal Rate of Return. Project Project Size ABCDEFG $11,200 21.0% 31,200 18.0 26,200 17.0 11,200 16.0 11,200 15.0 21,200 11.0 16,200 12.0 a. Pick out the projects that the firm should accept. (You may select more than one answer. Click the box with a check mark for the correct answer and click to empty the box for the wrong answer.) ? Project E ? Project G ? Project C ? Project B ? Project A ? Project F ? Project D b. If projects A and D are mutually exclusive, how would that affect your overall answer? That is, which projects would you accept In spending the $79,800? (You may select more than one answer. Click the box with a check mark for the correct answer and click to empty the box for the wrong answer.) ? Project E ? Project D ? Project B ? Project F ? Project A ? Project G ? Project C The Tyler Oil Company's capital structure is as follows: Debt Preferred stock Common equity 65% 10 25 The aftertax cost of debt is 10 percent; the cost of preferred stock is 13 percent; and the cost of common equity (In the form of retained earnings) is 16 percent. a-1. Calculate Tyler Oil Company's weighted average cost of capital. (Round the final answers to 2 decimal places.) Debt (ka) Preferred stock (Kp) Common equity (Ke) weighted average cost of capital (Ka) Weighted Cost % As an alternative to the capital structure shown above for Tyler Oil Company's, an outside consultant has suggested the following modifications. Debt Preferred stock Common equity 30% 20 50 Under this new and more debt-oriented arrangement, the aftertax cost of debt is 10.5 percent, the cost of preferred stock is 12 percent, and the cost of common equity (In the form of retained earnings) is 17.0 percent. a-2. Calculate Tyler's weighted average cost of capital. (Round the final answers to 2 decimal places.) Debt (Kd) Preferred stock (Kp) Common equity (Ke) Weighted average cost of capital (Ka) Weighted Cost b. Which plan is optimal in terms of minimizing the weighted average cost of capital? Plan 1 O Plan 2