Problem 1: A bond issued by Cornwallis, Inc. 15 years ago has a coupon rate of 7% and a face value of $1,000. The bond will mature in 10 years. What is the value (to the nearest dollar) to an investor with a required return of 10%?
Problem 2: Alaska Power Company issued $1,000 bonds that have an annual coupon rate of 7.5%. The present market value of the bonds is $1,125. If the bonds have 15 years remaining until maturity, what is the current yield on Alaska Power Company bonds?
Problem 3: Creamy Custard common stock is currently selling for $75.00. It just paid a dividend of $3.65 and dividends are expected to grow at a rate of 6% indefinitely. What is the required rate of return on Creamy Custard's stock?
Problem 4: Kilsheimer Company just paid a dividend of $4 per share. Future dividends are expected to grow at a constant rate of 6% per year. What is the value of the stock if the required return is 12%?
Problem 5: H. J. Corp. common stock paid $2.50 in dividends last year (D0). Dividends are expected to grow at a 12-percent annual rate forever. If H. J.'s current market price is $40.00, what is the stock's expected rate of return (nearest .01 percent)?
Problem 6: A project requires an initial investment of $347,500. The project generates free cash flow of $600,000 at the end of year 3. What is the internal rate of return for the project?
Problem 7: Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs $75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 in year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellars, Inc.'s required rate of return for these projects is 10%. The net present value for Project B is:
Problem 8: Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs $75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 in year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellars, Inc.'s required rate of return for these projects is 10%. The modified internal rate of return for Project A is:
Problem 9: A corporate bond has a face value of $1,000 and a coupon rate of 7%. The bond matures in 10 years and has a current market price of $988. If the corporation sells more bonds it will incur flotation costs of $30 per bond. If the corporate tax rate is 40%, what is the after-tax cost of debt capital?