1. Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the rate on 3-year Treasury securities is 9.20 percent, and the 6-year Treasury rate is 9.70 percent. From discussions with your broker, you have determined that expected inflation premium is 3.95 percent next year, 3.25 percent in Year 2, and 4.30 percent in Year 3 and beyond. Further, you expect that real interest rates will be 4.30 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?
1.10%
2.15%
1.45%
.60%
2. You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $280,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $28,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,800. The truck will have no effect on revenues, but it is expected to save the firm $122,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40 percent. What will the cash flows for this project be during year 2?
$116,200
$100,629
$141,772
$53,428