plz do only ch 7 question 4

ch 8 question 2,6,7

thx

MGF405 INSTRUCTOR: S. W. HUH HW3_chap0708 Check out the Submission Deadline! ________________________________________________________________________ Chap. 07: 1. We are evaluating a project that costs $644,000, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 70,000 units per year. Price per unit is $37, variable cost per unit is $21, and fixed costs are $725,000 per year. The tax rate is 35 percent, and we require a 15 percent return on this project. a. Calculate the accounting break-even point. b. Calculate the base-case cash flow and NPV. What is the sensitivity of NPV to changes in the sales figure? Explain what your answer tells you about a 500-unit decrease in projected sales. c. What is the sensitivity of OCF to changes in the variable cost figure? Explain what your answer tells you about a $1 decrease in estimated variable costs. 2. L.J.'s Toys Inc. just purchased a $390,000 machine to produce toy cars. The machine will be fully depreciated by the straight-line method over its five-year economic life. Each toy sells for $25. The variable cost per toy is $11, and the firm incurs fixed costs of $280,000 each year. The corporate tax rate for the company is 34 percent. The appropriate discount rate is 12 percent. What is the financial break-even point for the project? (Note that the financial break-even point is the same as the NPV break-even point.) 3. Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $34 million. If the DVDR fails, the present value of the payoff is $12 million. If the product goes directly to market, there is a 50 percent chance of success. Alternatively, Ang can delay the launch by one year and spend $1.3 million to test market the DVDR. Test marketing would allow the firm to improve the product and increase the probability of success to 80 percent. The appropriate discount rate is 11 percent. Should the firm conduct test marketing? 4. We are examining a new project. We expect to sell 9,000 units per year at $35 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $35 9,000 = $315,000. The relevant discount rate is 16 percent, and the initial investment required is $1,350,000. 1 a. What is the base-case NPV? b. After the first year, the project can be dismantled and sold for $950,000. If expected sales are revised based on the first year's performance, when would it make sense to abandon the investment? In other words, at what level of expected sales would it make sense to abandon the project? c. Explain how the $950,000 abandonment value can be viewed as the opportunity cost of keeping the project in one year. Chap. 08: 1. Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity: 15 years Coupon rate: 7 percent Semiannual coupon payments for questions a and b / Quarterly coupon payments for question c Calculate the price of this bond if the YTM is: a. 7 percent b. 9 percent c. 5 percent 2. Rhiannon Corporation has bonds on the market with 11.5 years to maturity, a YTM of 7.6 percent, and a current price of $1,060. The bonds make semiannual payments. What must the coupon rate be on these bonds? 3. An investment offers a 14 percent total return over the coming year. Alan Wingspan thinks the total real return on this investment will be only 10 percent. What does Alan believe the inflation rate will be over the next year? 4. Locate the Treasury bond in Figure 8.4 maturing in February 2037. What is its coupon rate? What is its bid price? What was the previous day's asked price? 5. Miller Corporation has a premium bond making semiannual payments. The bond pays a coupon of 8 percent, has a YTM of 6 percent, and has 13 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond pays a coupon of 6 percent, has a YTM of 8 percent, and also has 13 years to maturity. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 3 years? In 8 years? In 12 years? In 13 years? What's going on here? Illustrate your answers by graphing bond prices versus time to maturity. 6. Laurel, Inc., and Hardy Corp. both have 7 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. The Laurel, Inc., bond has 2 years to maturity, whereas the Hardy Corp. bond has 15 years to maturity. If 2 interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds? (Assume the face value is $1,000 hereafter, if not specified.) 7. You purchase a bond with a coupon rate of 5.9 percent and a clean price of $1,053. If the next semiannual coupon payment is due in four months, what is the invoice price? 3