1. Knight Transportation, Inc. issued bonds on January 1, 2000 with a face value of $1000 per bond. They are due on Janu...

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Knight Transportation, Inc. issued bonds on January

April 14, 2018

  • 1. Knight Transportation, Inc. issued bonds on January 1, 2000 with a face value of $1000 per bond. They are due on January 1, 2003. The coupon rate is 6.10% and the market rate is 5.80%. What is the market value of the bond and why? Use an Excel template and copy the answer to solution window.
  • Assume Chicago Corporation pays a $5.00 dividend and will have a sale price of $200 in one year. The current required rate of return is 20%. What is the current value of the share?


  • 2. Assume the dividend in the next period is $10, the market rate is 12%, and the grow rate is projected at 4%. What is the current value of a share of stock?
  • 3. Crescent Industries management is planning on replacing some machinery in its plant. The projected cash flows are shown below. The firm uses an 18% cost of capital.
  • 4. Net Present Value Calculations

Year

Cash Flow

0

($3,300,000)

1

$875,123

2

$966,222

3

$1,145,000

4

$1,250,399

5

$1,504,455

  • 6. Hathaway, Inc., a resort management company, is refurbishing one of its hotels at the cost of $6.8 million. Management expects this will lead to additional cash inflows of $1.8 million each year, over the next five years. Cost of capital is 12%. Calculate the IRR. Should they go ahead with this project?
  1. 7. Spokane Foundry plans to spend $1,000,000 on new tooling. They are projecting this investment will generate $300,000 a year over the next five years. Depreciation is projected to be $100,000 per year. The tax rate is 30% and they use a 20% discount rate. What is the NPV after taxes taking depreciation into consideration? Should they make the investment?










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