1. Describe the rating systems of Moody’s versus Standard and Poors. Why do corporations pay to have their bonds rated by these agencies? What do these ratings suggest about a corporate bond to an investor?
2. Alpha Industries is considering a project with an initial cost of $9.2 million. The project will produce cash inflows of $1.72 million per year for 8 years. The project has the same risk as the firm. The firm has a pretax cost of debt of 5.97 percent and a cost of equity of 11.51 percent. The debt–equity ratio is .72 and the tax rate is 35 percent. What is the net present value of the project?