FOUR FINANCE MISC. PROBLEMS

  1. J&J Manufacturing issued a bond with a $1,000 par value. The bond has a coupon rate of 7% and makes payments semiannually. If the bond has 30 years remaining and the annual market interest rate is 9.4%, what will the bond sell for today?

     

  2. Chapman’s Inc.’s Mexican subsidiary, V. Gomez Corporation, is expected to pay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S. taxes have been subtracted. The exchange rate in 1 year is expected to be 0.10 dollar per peso. After this, the peso is expected to depreciate against the dollar at a rate of 4% a year forever due to the different inflation rates in the US and Mexico. The peso-denominated divident is expected to grow at a rate of 8% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream, in dollars assuming V. Gomez’s cost of equity is 13%?

     

  3. NICO Corporation had net fixed assets of $2,000,000 at the end of 2006 and $1,800,000 at the end of 2005. In addition, the firm had a depreciation expense of $200,000 during 2006 and $180,000 during 2005. Using this information, NICO’s net fixed asset investment for 2006 was:

    a. $400,000.
    b. $380,000.
    c. $0.
    d. $20,000.

     

  4. Harper Corp.’s sales last year were $395,000, and its year-end receivables were $42,500. Harper sells on terms that call for customers to pay 30 days after the purchase, but many delay payment beyond Day 30. On average, how many days late do customers pay? Base your answer on this equation: DSO – Allowed credit period = Average days late, and use a 365-day year when calculating the DSO

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