Assuming annual interest payments, what is the value of a 5-year 6.2% coupon bond when the discount rate is: (i) 4.5%, (ii) 6.2%, and (iii) 7.3%?
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5 ) Y1 dep. = $2,400,000(0.3330) = $799,200
Y2 dep. = $2,400,000(0.4440) = $1,065,600
Y3 dep. = $2,400,000(0.1480) = $355,200
Book V in 3 y. = $2,400,000 – ($799,200 + 1,065,600 + 355,200) = $180,000
Aftertax salvage V = $225,000 + ($180,000 – 225,000)(0.35) = $209,250
OCF
Year | |
0 | – $2,685,000 = –$2,400,000 – 285,000 |
1 | 994,720 = ($1,100,000)(.65) + 0.35($799,200) |
2 | 1,087,960 = ($1,100,000)(.65) + 0.35($1,065,600) |
3 | 1,333,570 = ($1,100,000)(.65) + 0.35($355,200) + $209,250 + 285,000 |
NPV = – $2,685,000 + ($994,720/1.12) + ($1,087,960/1.12^2 ) + ($1,333,570/1.12^3 ) = $19,666.69
6) Annual dep. = $850,000/5 = $170,000
Aftertax salvage V = $75,000(1 – 0.35) = $48,750
OCF = $320,000(1 – 0.35) + 0.35($170,000) = $267,500
NPV = 0 = –$850,000 + 105,000 + $267,500(PVIFA IRR%,5) + [($48,750 – 105,000) / (1+IRR)^5]............. IRR = 22.01%
7)
Annual depr. = $420,000/5 = $84,000
book value = 0
Aftertax salvage value = MV + (0 – MV)tc = MV(1 – tc)
Aftertax salvage value = $60,000(1 – 0.34) = $39,600
OCF = $135,000(1 – 0.34) + 0.34($84,000) = $117,660
Now we can find NPV
NPV = –$420,000 – 28,000 + $117,660(PVIFA10%,5) + [($39,600 + 28,000) / 1.1^5] = $39,998.25