Question

Essay questions

Barry Company is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected. (you must show all of your work to get full credit)

WACC: 12.00% Year 0 1 2 3 4 5 ----------------------------------------------------------------------- Cash flows -$1,100 $400 $390 $380 $370 $360

Morin Company's bonds mature in 8 years, have a par value of $1,000, and make an annual coupon interest payment of $65. The market requires an interest rate of 8.2% on these bonds. What is the bond's price? ( you must show all of your work to get full credit)

Answer 1

NPV is the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

NPV = $357.14 + $310.91 + $270.48 + $235.14 + $204.27 - $1,100

NPV = $277.94

Price of a bond is mathematically represented as:

where P is price of bond with periodic coupon C, periodic YTM i, n periods to maturity and M par value

P = $370.71 + $532.33

P = $903.04