Valuation fundamentals Personal Finance ProblemImagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annualafter-tax cash benefits of

$1,787 at the end of each year and assume that you can sell the car forafter-tax proceeds of

$6,000 at the end of the planned 5-year ownership period. All funds for purchasing the car will be drawn from yoursavings, which are currently earning 7% after taxes.

a. Identify the cashflows, theirtiming, and the required return applicable to valuing the car.

b. What is the maximum price you would be willing to pay to acquire thecar? Explain.

Asset valuation and risk Personal Finance Problem Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $3,000 per year at the end of years 1 through 4 and $15,000

at the end of year 5. Her research indicates that she must earn 10% onlow-risk assets, 15% onaverage-risk assets, and 22% onhigh-risk assets.

a.Determine what is the most Laura should pay for the asset if it is classified as(1) low-risk,(2) average-risk, and(3) high-risk.

b.Suppose Laura is unable to assess the risk of the asset and wants to be certainshe's making a good deal. On the basis of your findings in part a, what is the most she shouldpay? Why?

c. All else being thesame, what effect does increasing risk have on the value of anasset? Explain in light of your findings in part a.

Bond interest payments before and after taxes Charter Corp. has issued 2,331 debentures with a total principal value of $2,331,000.The bonds have a coupon interest rate of 8%.

a. What dollar amount of interest per bond can an investor expect to receive each year fromCharter?

b. What isCharter's total interest expense per year associated with this bondissue?

c. Assuming that Charter is in a 35% corporate taxbracket, what is thecompany's netafter-tax interest cost associated with this bondissue?

Bond valuationAnnual interest Calculate the value of the bond shown in the followingtable, assuming it pays interest annually.

Par valueCoupon interest rateYears to maturityRequired return

$1,0008%69%

The value of the bond is $ ______