Application 1: Some financial analysts recommend that because debt financing is typically cheaper than equity financing, CAT shall only use long-term bond debt to finance the purchase of the computerized system. In the sample solutions of Chapter 07 HW Part B, we have found that the longest-maturity CAT bond (CAT.MO, maturing at 01-March-2097) has a most-current "last trade yield (to maturity)" of xxx% per year, and thus this given xxx% per year on CAT bond is used as the required return (i.e., cost of capital financing) for your long-term-debt-financed capital investment. Based on the required return of xxx% for long-term debt financing, if CAT applies the IRR rule, shall CAT purchase the order entry system or not? Based on the required return of xxx% for long-term debt financing, if CAT applies the NPV rule, shall CAT purchase the order entry system or not? (You need to show me the resulting NPV amount as supporting evidence)

Answers for B3: Use PRICE(...) Function: Settlement date, ie, "Last Trade Date" 4/23/2019 Maturity date 3/1/2097 7.375% Coupon rate Yield Redemntion e nar 4.5: 100 (Redemption MUST always be set to 100, which means "full amount redemption") Coupons frequency per year 2 ("Semi-Annual) PRICE (relative to par of 100)160.675 (as we calculate and double-check, based on the given yield) Based on the web data, for the given "last trade yield" of 4.536 % , the correct "late trade price" should be 160.675, much above the given amount of "145.54" on Morningstar Website. Elther the website has misinformatiorl in its database, or some mispricing did occur bond market on that settlement date Something worth 160.675 sold for 145.54 only (relative to par of 100)! Answers for B3: Use PRICE(...) Function: Settlement date, ie, "Last Trade Date" 4/23/2019 Maturity date 3/1/2097 7.375% Coupon rate Yield Redemntion e nar 4.5: 100 (Redemption MUST always be set to 100, which means "full amount redemption") Coupons frequency per year 2 ("Semi-Annual) PRICE (relative to par of 100)160.675 (as we calculate and double-check, based on the given yield) Based on the web data, for the given "last trade yield" of 4.536 % , the correct "late trade price" should be 160.675, much above the given amount of "145.54" on Morningstar Website. Elther the website has misinformatiorl in its database, or some mispricing did occur bond market on that settlement date Something worth 160.675 sold for 145.54 only (relative to par of 100)