Question

1) Dean bought a $26,000 bond that has interest rate of 8% per year payable semiannually, 3 years ago. The bond has a maturity date of 12 years from the date it was issued. How much should he be able to sell the bond for today, if the current market interest rate is 9% per year, compounded semiannually?

2) A manufacturing firm is considering two models of lathes. Model A will have an initial cost of $29,000, an operating cost of $2750, and a salvage value of$6500 after 6 years. Model B will have an initial cost of $36,500, an operating cost of$2200, and a $7750 resale value after 12 years. At an interest rate of 10% per year, which model should the consulting firm buy?

3) A Caribbean cruise line has purchased a new cruise ship for $670,000 and expects to realize a net revenue of $190,000.00 each year for the next 10 years. The estimated salvage value of the ship at the end of its useful life of 10 years is$52,000. Assume an effective federal tax of 40%, state income tax of 10.75% per year, and an after-tax MARR of 14% per year. Calculate the present worth of ATCF if a straight-line depreciation method is used.

4) Aggie Satellite Corp. issued 10,000 debenture bonds with a face value of $32,000 each and a bond interest rate of 14% per year, payable quarterly. The bonds have a maturity date of 13 years. If the inflation-free interest rate is 17% per year, and the inflation rate is 7.5%, what is the present worth of one bond to a person who wants to purchase it?

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