R-Kraine Inc. is considering acquiring an existing project (with financial backing from the government). The project...

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R-Kraine Inc. is considering acquiring an existing project (with financial backing from the government). The project is expected to have another 8 (full) years of economic life. The project's year-end cash flows are as follows: Years 1-4: $2m each year Years 5-8: $500,000, $2m, $500,000 and $2m (respectively) Suppose the relevant discount rate for the project could be estimated from the following cash flows of an 8-year (fixed) coupon bond issued by R-Kraine a couple of months ago: Current market price (per unit): $584,608.5676 Face value (per unit): $800,000 Yearly coupon payments: $72,000 a) Calculate the YTM of the bond. [Hint: State clearly the relevant numerical formula and then crunch out the answer using Excel program or financial calculator. The answer can also be solved with a scientific calculator using a manual trial-and-error approach as the YTM was set to be an integer.] (4 marks) b) Determine the value of this project. (5 marks) c) Based on the NPV decision rule, determine the highest acquisition price/cost that would make this project worth to be acquired. (2 marks) R-Kraine Inc. is considering acquiring an existing project (with financial backing from the government). The project is expected to have another 8 (full) years of economic life. The project's year-end cash flows are as follows: Years 1-4: $2m each year Years 5-8: $500,000, $2m, $500,000 and $2m (respectively) Suppose the relevant discount rate for the project could be estimated from the following cash flows of an 8-year (fixed) coupon bond issued by R-Kraine a couple of months ago: Current market price (per unit): $584,608.5676 Face value (per unit): $800,000 Yearly coupon payments: $72,000 a) Calculate the YTM of the bond. [Hint: State clearly the relevant numerical formula and then crunch out the answer using Excel program or financial calculator. The answer can also be solved with a scientific calculator using a manual trial-and-error approach as the YTM was set to be an integer.] (4 marks) b) Determine the value of this project. (5 marks) c) Based on the NPV decision rule, determine the highest acquisition price/cost that would make this project worth to be acquired. (2 marks)

Answer rating: 100% (QA)

Part a YTM is the value of r in the following formula Price P C11rnr F1rn Where C Yearly coupon ... View the full answer