question 4

Dan is considering purchasing a bond with a face value of $1,000 and a coupon rate of 5%. The bond

matures in 5 years and pays the coupon twice per year. Dan's "MARR" is 10%, compounded semiannually.

What should Dan be willing to pay for the bond?

question 5

(12 points) You are in charge of selecting a project for your company to invest in. You are presented with the following mutually exclusive alternatives: First Cost ($) Annual Project Revenues ($) Annual Project Costs ($) Project Duration ($) Equipment Salvage Value ($) Project A 55,000 25,000 5,000 3-years 2,000 Project B 115,000 26,000 5,000 6-years 10,000 a) If your company uses an interest rate of 5% when evaluating projects, which project should you chose? Conduct your analysis using the PW (Present Worth) Method. b) What would you recommend if the Annual Revenues for Project B started at $26,000 in year 1, as in the table above, but instead of remaining constant they increased by $250 per year thereafter? (i.e. the Annual Project Revenues became: yr1:$26, 000; yr2.'$26, 250; yr3:$26, 500; yr4:$26, 750; yr5:$27, 000; yr6:$2 7, 250.|