# 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 cash flow 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