1. A capacity alternative has an initial cost of $75,000 and $35,000 salvage value. It creates cash flow (income) of $15,000 for each of the next five years. If the cost of capital is 12 percent (i =12%), what is the net present value of this investment?
2. Noncallable bonds that mature in 22 years were recently issued by Sternglass Inc. They have a par value of $1,000 and an annual coupon of 9%. If the current market interest rate is 8%, at what price should the bonds sell?
3. Suppose the us treasury offers to sell bond for 630. No payment will be made until the bond matures 12 years from now, at which time it will be redeemed for 1000. What interest rate would the bond earn if it were purchased at this price?