G- Value company is considering two investments, both of which costs $20,000. The firm's cost of capital is 15 percent (%). The cash flows are as follows:
|
YEAR
|
PROJECT A
|
PROJECT B
|
|
1
|
12,000
|
10,000
|
|
2
|
8,000
|
6,000
|
|
3
|
6,000
|
16,000
|
REQUIRED: (SHOW ALL WORKINGS)
- What is the payback period for each project? Which project would you accept based on the payback period and why?
- What is the discounted payback for each period? Which project would you accept based on the discounted payback criterion and why?
- Calculate the NPV of each project? Which project would you choose based on the NPV criterion and why?
- Based on the IRR criteria which project would you choose if they were mutually exclusive? (SHOW ALL WORKINGS)
Johnson Brothers Ltd; has bonds outstanding that matures in 7 years and pays a 6 percent (%) semi-annual coupon.
What will the bond price be for one of these bonds if the par value is $1,000 and the market interest rate is 8.0 percent (%) Calculate and explain what would happen to the value of the bond if the market interest rate falls from 8.0 percent (%) to 6.0 percent (%) What is the YTM?List the key features of a bond.
Explain what is meant by net proceeds in the context of a bond sale. Provide an example.