❖ This assignment is an individualassignment.
❖ The Assignment must be submitted only in WORD format via the allocated folder.
❖ Assignments submitted through email will not be accepted.
❖ Students are advised to make their work clear and well presented. This also includes filling in your information on the cover page.
❖ Students must mention question numbers clearly in their answers.
❖ Late submitted assignments will NOT be entertained.
❖ Avoid plagiarism; the work should be in your own words; copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. ❖ All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment Questions:(Marks: 15)
A company issued 10-year bonds three years ago with a coupon of 7 percent. If the current market rate is 8 percent and the bonds make annual coupon payments, what is the current market value of one of these bonds?what is the current market value of one of these bonds if it was a zero-coupon rate? (2.5 Marks)
ABC company is growing at a constant rate of 7percent every year. Last week the company paid a dividend of $1.8. If dividends are expected to grow at the same rate as the fi rm and the required rate of return is 12 percent, what should be the stock’s price four years from now?(2.5 Marks)
XYZ company is considering developing new computer software. Th e cost of development will be $775,000 and management expects the net cash flow from sale of the software to be $200,000 for each of the next six years. If the discount rate is 13 percent, what is the net present value and payback period of this project? (2.5 Marks)
A chemical company is considering buying a magic fan for its plant. Th e magic fan is expected to work forever and help cool the machines in the plant and, hence, reduce their maintenance costs by $6,000 per year. Th e cost of the fan is $50,000. Th e appropriate discount rate is 10 percent, and the marginal tax rate is 35 percent. Should the company buy the magic fan?(2.5Marks)
Define bond yield to maturity. Why is it important? (2.5 Marks)
Explain why preferred stock is considered to be a hybrid of equity and debt securities?(2.5 Marks)
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