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Brooks Books’ bonds have 6 years remaining to maturity.  Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 9 percent; and the yield to maturity is 6.5 percent.  What is the bond’s current market price?

A firm with a 9 percent cost of capital is evaluating two projects for this year’s capital budget.  The projects’ expected after-tax cash flows are as follows: Year: 0 1 2 3 Project X: -$15,000 $6,900 $6,600 $7,200 Project Y: -$6,000 $2,000 $2,300 $1,900 If Projects X and Y are mutually exclusive, which one(s) should the firm adopt?

A firm’s bonds have a maturity of 23 years with a $1,000 face value, a 7 percent semiannual coupon, are callable in 4 years at $1,075, and currently sell at a price of $1,165.  What is their yield to call (YTC)?

What is the present value of a perpetuity that pays $3,800 per year if the discount rate is 5 percent?

If interest rates fall after a bond issue, the bond’s price will _____.  This change will be more noticeable for _________ bonds.

If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

What is the present value of an ordinary annuity that pays $900 per year for 5 years, assuming the annual discount rate is 8 percent?

Corbett Manufacturing can invest in one of two mutually exclusive machines that will make a product it needs for the next 6 years.  Machine C costs $10 million but realizes after-tax inflows of $4.2 million per year for 3 years, after which it must be replaced.  Machine D costs $14 million and realizes after-tax inflows of $3.4 million per year for 6 years.  Based on the firm’s cost of capital of 11 percent, the NPV of Machine D is $383,829, with an equivalent annual annuity (EAA) of $90,728 per year.  Calculate the EAA of Machine C. Compare your result to that of Machine D and decide which to recommend.

The Harden Company’s cost of common equity is 12 percent, its before-tax cost of debt is 8 percent, and its marginal tax rate is 30 percent.  Given Harden’s market value capital structure below, calculate its WACC. Long-term debt $11,000,000 Common equity   39,000,000 Total capital $50,000,000

Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project’s 3-year life. What is the project’s Year 1 operating cash flow?   Equipment cost (depreciable basis) $65,000     Sales revenues, each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 35.0%