Yu grdutd frm th univrsity fiv yrs g nd sin thn yu hv bn wrking t th ffrdbl rs mpny () In. Th In. is n mrin multintinl utmbil mnufturr. Th mpny ws fundd lmst 100 yrs g. It is th snd-lrgst USbsd utmkr nd th fifth-lrgst in th wrld. Yu ttnd th mting with th hif finnil ffir, Bn, nd th hif prting ffir, Jn. Jns grup is plnning t lunh nw r.

1. Th In. lrdy hs tw luxury sprts brnds nd thr ffrdbl fmily rs n th mrkt. This nw r will b mr ffrdbl sprts r. Jn lld this mting t g vr th lng-witd mrkt rsrh rprt fr this ffrdbl sprts r mdl mmissind frm th Mrkts-R-Us mpny nd dlivrd ystrdy. rding t this rprt, thr is nih fr n ffrdbl sprts r. Hwvr, this nih will b filld by th mpnys mptitrs in fiv yrs. Thrfr, Jn thinks tht th mpny n prdu nd sll ths ffrdbl sprts rs fr th nxt fiv yrs withut ny mptitin nd thn trmint th prjt whn th mptitrs mv int th mrkt. Th hs t py $5,000,000 fr this mrkt rsrh rprt t th nd f th mnth.

Th will hir n xtrnl dsign tm fr this nw mdl nd py $6,000,000 fr thir srvis if th mpny dids t prdu th nw mdl. Bn rmmnds using th building wnd by th mpny s th prdutin fility fr this nw mdl. Th mpny hs bn rnting this building fr $10,000,000 pr yr t its nighbr firm fr th pst svrl yrs. Bn tlkd t th tnnt bfr th mting nd lrnd tht th tnnt wuld lik t ntinu rnting this building fr th fllwing 5 yrs.

Th rprt shws tht this nw sprts r mdl n b sld fr $60,000 pr r this yr. Th pri f this r will inrs by 2% infltin vry yr. Th mpny n sll 50,000 rs pr yr during th nxt 5 yrs. Th vribl prdutin sts r xptd t b 75% f th sls rvnu. In dditin t ths vribl prdutin sts, thr will b $100,000,000 fixd sts vry yr.

Th In. hs t buy nw mhin t prdu th nw mdl whih sts $1,000,000,000. Shipping, insurn nd instlltin sts will b 5% f th quisitin st. This mhin will b dpritd t vlu f 0 by stright-lin dpritin mthd vr 6 yr prid. Th mpny n sll this mhin fr $100,000,000 t th nd f 5 yrs.

n imprtnt pint is tht this nw mdl will fft th sls f Mdl X20, nthr ffrdbl r prdud by th mpny. Sls f Mdl X20 will drs by 10,000 units pr yr fr th nxt 5 yrs. Th xisting mdl is slling fr $50,000 nw nd its pri is ls xptd t inrs with infltin vry yr. Th vribl prdutin sts fr Mdl X20 r ls 75% f its sls rvnu. Th fixd prdutin sts f this mdl r $50,000,000 pr yr.

T prdu this nw sprts r mdl, th mpny hs t rry n invntry f prts qul t 10% f th sls rvnu f th nw mdl in th fllwing yr. Similrly, will hv n inrs in its unts pybls qul t 5% f th sls rvnu f th nw mdl in th fllwing yr.

Th , In. is in th 34% tx brkt, nd th mpnys invstrs xpt rturn f 12% n prjt lik this.

1. lult th ttl sh flws frm ssts (FF) thrughut th lif f this prjt.
2. Did if this is n ptbl prjt r nt.

2. T finn th grwth in its prtins, In. nds t ris dditinl pitl. Bn nd his grup didd t issu tw bnds fr this purps.

Bnd N In. wnts t issu $500,000,000 wrth f bnds. Ths bnds hv $1,000 pr vlu, tim t mturity f 20 yrs, nd 10% upn rt. Bnd N mks sminnul upn pymnts. Ths bnds r issud t pr vlu tdy.

Bnd P In. wnts t issu $100,000,000 wrth f pur disunt bnds with 7-yrs t mturity. Ths bnds ls hv $1,000 pr vlu. Bnd P is issud t yild t mturity f 8% tdy.

2. 1. Th In. is n ld nd vry lrg mpny thus its rdit rting is vry high. Its xisting bnds hv rdit rting f . Hwvr, this nw prjt is riskir mprd t its nging prdutins. s rsult, Bnd N is issud with rdit rting f . Givn this infrmtin, brifly disuss th rltinship btwn th yilds n mpnys xisting 20-yr bnds nd Bnd N t th tim f its issu.
   2. Stt th yild t mturity n Bnd N.
   3. lult th pri f Bnd P tdy.
   4. Supps yr hs pssd nd th yild t mturity n Bnd N hngd t 12%. lult th pri f Bnd N in th mrkt t tht tim.
   5. lult Bnd N's urrnt nd pitl gins yilds in th lst yr.
   6. Supps tw mr yrs hv pssd nd th rting gnis hs hngd th rdit rting f Bnd N t tdy. Ths bnds r trding in th mrkt t pri f $1,086.23.
      1. Brifly disuss rsn fr th hng in th pri f Bnd N.
      2. lult th yild t mturity fr Bnd N.
      3. Brifly disuss if it is pssibl fr Bnd P t trd t pri bv pr s wll.
3. Th In. hs bth mmn stk nd prfrrd stk utstnding.

mmn Stk - 1 millin shrs f mmn stk r utstnding. Sin it is n ld nd stblishd firm, th mpny hs pid dividnds vry yr inluding tdy. Hwvr, t finn th invstmnt in this nw prjt, th dids nt t py ny dividnds fr th nxt 3 yrs. t th nd f yr 4, th mpny will py dividnd f $2.2 pr shr. Frm thr n, th mpny's dividnds r xptd t grw t 25% pr yr fr th fllwing 3 yrs, nd t 6% pr yr frvr thrftr. nlysts rgu tht invstrs wuld rquir rturn f 18% fr th fllwing 5 yrs nd 13% thrftr frvr.

Prfrrd Stk 250,000 shrs f umultiv prfrrd stk r utstnding. Th mpny pys dividnds f $3.1 pr shr vry yr inluding tdy. Hwvr, t finn th invstmnt in this nw prjt, th dids nt t py ny dividnds fr th fllwing 3 yrs t its prfrrd stkhldrs s wll. t th nd f yr 4, th mpny will ntinu t py nnul dividnds f $3.1 pr shr vry yr. nlysts stimt tht invstrs rquir rturn f 12% frm this invstmnt.

1. Givn ll this infrmtin,
   1. lult th pri t whih In.s mmn stk n trd in th mrkt tdy.
   2. lult th pri t whih In.s umultiv prfrrd stk n trd in th mrkt tdy.
2. Supps 4 yrs hv pssd. Hlding vrything ls nstnt,
   1. lult th vlu f In.s mmn stk nw.
   2. lult th vlu f In.s prfrrd stk nw.