Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3 years and your cash
1 answer:
Answer and Explanation:
The computation of the net present value and the internal rate of return is shown below:
After applying the excel formulas for NPV and IRR i.e.
For NPV = NPV()
For IRR = IRR(IRR)
The NPV and IRR is $4.61 million and 38% respectively
Since the NPV is in positive so the project should be accepted also the IRR would be agree with the NPV
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Answer:
the annual pre-tax cost of debt is 10.56%
Explanation:
the beore-tax component cost of debt will be the actual market rate of the bonds, as they offer an interest rate of 11% but are selling at 104 points not at par thus, there is a difference between the rates.
We solve for the rate which makes the coupon and maturity 104
with excel or a financial calculator
PV of the coupon payment
C 5.500 (100 x 11%/2)
time 60 (30 years x 2 payment per year)
rate <em>0.052787474</em>
PV $99.4338
PV of the maturity
Maturity 100.00
time 60.00
rate <em>0.052787474</em>
PV 4.57
<em><u>Adding both we should get 104 which is the amount the bonds is selling:</u></em>
PV coupon $99.4338 + PV maturity $4.5662 = $104.0000
The rate is generated using goal seek or wiht a financial calculator.
This rate is a semiannual rate, so we multiply by 2 to get the annual cost of debt:
0.052787474 x 2 = 0.105574947
The cost of debt for the firm is 10.56%