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Finance problems: NPV, Freddie Industries bond, break even l

1-An investment costs 10,000 and offers an annual cash flow of 1770 for 10 years. According to the net present value method of capital budgeting, should the firm make this investment if its cost of capital is 10%?

2-A Freddie Industries $10,000 bond was issued with a 6% coupon rate and will mature in 20 years. Assume that they pay the coupon payment once a year and the current market return for a similar bond is 7%. What do you believe is a fair price for this bond?

3-TR=$3Q
TC=$15,00+$2Q(fixed+variable/unit)
What is the break-even level of output?
What are the profit or losses if the firm sells 1,300 unit

Solution Preview

1-An investment costs 10,000 and offers an annual cash flow of 1770 for 10 years. According to the net present value method of capital budgeting, should the firm make this investment if its cost of capital is 10%?

PVA = W x 1 - 1 where PVA is the present value
(1 + R)N W is the amount required of annuity each year
R R is the interest rate
N is the period
PVA = 1770 x 1 - ...

Solution Summary

This solution is comprised of a detailed explanation to answer should the firm make this investment if its cost of capital is 10%, what do you believe is a fair price for the bond, what is the break-even level of output, and what are the profit or losses if the firm sells 1,300 unit.

$2.19