1. What is the value of a 10% semi-annual coupon bond with a par value of $1000 that matures in 5 years and has a required rate of return of 9% please show work. Which one of these statements most applies to a firm that is suffering from financial distress?
A. Bondholders will desire high risk projects in order to protect their investment.
B. Stockholders will increase their investment in the firm to protect their current investment.
C. Stockholders will generally prefer low-risk over high-risk projects.
D. Managers will tend to lower dividends in an effort to protect shareholder value.
E. Stockholders will bear the cost of selfish investment strategies through higher interest payments.
2. Hatwick Technology is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $10,200 per year with the first payment occurring immediately. The equipment would cost $44,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6%. The corporate tax rate is 34%. What is the NPV of the lease relative to the purchase if the asset had a residual value of $800 (ignoring any possible risk differences)?
$805.73
-$1,137.80
-$1,411.48
-$961.15
$1,218.34