Question

a) You hold a bond with a coupon interest rate of 8.00% and a face (par) value of $10,000. If the maturity date is 4 years and the market’s required yield to maturity for similar rated debt is 6.00%, what is the value of this bond?

b)An ordinary share pays a $2.00 dividend at the end of last year and is expected to pay a cash dividend every year from now to infinity. Each year, the dividends are expected to grow at a rate of 5.00%. Based on an assessment of the riskiness of the ordinary shares, the investor’s required rate of return is 12.00%. What is the value of this ordinary share?

c) The new product that Mother-Hydro company is considering investing in has the following estimates of fixed and variable costs:

Project information
Units sales	210,000
Price per unit	$26.00
Variable cost per unit	$21.00
Total fixed costs (cash + depreciation costs)	$680,000

Use a diagram to show and explain the accounting break-even level. Your answer should include the break-even in units and in a dollar amount?

d) Mother-Hydro analysts now want to consider how the pandemic would affect the accounting break-even. Specifically consider a unit price of $22, variable cost per unit of $20, and total fixed costs of $660,000.

Answer 1

a)