(8) You put $60,000 into an account that pays 4%. Ten years from today (end of 10 years), you plan to make equal annual withdrawals for 8 years until the account is empty. How much do you withdraw?

2. (10) You bought a car for $54,000. The downpayment was $4,000. You have a 6-year auto loan for the remaining amount at an interest rate of 6.7% (with monthly compounding).
4. What are your monthly payments? What is the effective rate on the loan?
6. They just made the 15^th payment. What is the outstanding balance on the loan?

Bonds

1. (10) Sky Train Inc. originally issued 10-year bonds with a face value of $1000 at par. The bonds have a coupon rate of 8%, and coupons are paid semiannually. The bonds will mature in 6 years, and the yield to maturity is 6.4% with semiannual compounding.
   2. Find the bond's price today.
   4. If the yield rises, what do you expect will happen to the bond price?

1. (10) Assume zero-coupon yields on default-free securities are as summarized in the following table:

What is the price of a 2-year default-free security with a face value of $1000 and an annual coupon rate of 5%?

Stocks

1. (10) Owl expects to pay a dividend of $3.54 per share next year. For the following 2 years, Owl Group expects a growth rate of 20%. After year 3, Owl expects a growth rate of 4%. The required return is 9%. What is the current share price?

1. (10) ANW just reported earnings per share of $2.50 and an annual dividend of $1.40. Their return on equity is 12%.
   2. If investors require 8%, estimate the share price.
   4. Would you expect the PVGO (Present Value of Growth Opportunities) to be positive or negative?Explain.

Capital Budgeting

1. 
   

1. (8) For the project below, you have the following cash flows. The maximum payback period is 2 years and the cost of capital is 9%.

2. Calculate the payback period. Do you accept the project?
4. Calculate the profitability index. Do you accept the project?

1. (15) Mummy Group is considering a new product line. The new line requires a machine that costs $21,000,000. It will be fully depreciated to a zero-book value on a straight-line basis over 3 years. Sales are $65M per year for years 1, 2 and 3. Operating expenses are 60% of sales. Mummy will have $4,000,000 annually in interest expenses as part of the financing of the machine. The initial investment in net working capital is $2 million and all of this is returned in year 3. The tax rate is 25% and the cost of capital is 11%.
   2. Find the free cash flows for the project (so you will have time 0, 1, 2, and 3).
   4. Find the internal rate of return.
   6. Find the net present value.
   8. Using the IRR to make the decision, should Mummy start the new line? Explain using the IRR.