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Planning & Forecasting: PV of Bond YTM, After-Tax Cash Flow

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1. What is the present value of $800 to be received at the end of eight years, assuming the
following annual interest rate?
a. 4 percent, discounted annually
b. 8 percent, discounted annually
c. 20 percent, discounted quarterly
d. 0 percent

2. What would you be willing to pay for a $1,000 bond paying $70 interest at the end of each year and maturing in 25 years if you wanted the bond to yield the following rates of return?
a. 5 percent
b. 7 percent
c. 12 percent
(Note: At maturity, the bond will be retired and the holder will receive $1,000 in cash.Bonds are typically issued with $1,000 face, or par, values. The e actual market value at anypoint in time will tend to rise as interest rates fall and fall as interest rates rise).

3. Last year, Silver Mines, Inc., had earnings after tax of $650,000. Included in its expenses were depreciation of $400,000 and deferred taxes of $100,000. The company also purchased new capital equipment for $300,000 last year. Calculate the after-tax cash flow for last year.

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The solution determines the PV of bond YTM, and after-tax cash flow.

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