Determine the net proceeds of each bond

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Reference no: EM131213591

ASSIGNMENT: Financial Management

Directions: Be sure to save an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English, spelling, and grammar.

Respond to the items below.

Part A: Cash Flow of Accounts Receivable

Myers and Associates, a famous law office in California, bills its clients on the first of each month. Clients pay in the following fashion: 40% pay at the end of the first month, 30% pay at the end of the second month, 20% pay at the end of the third month, 5% pay at the end of the fourth month, and 5% default on their bills. Myers wants to know the anticipated cash flow for the first quarter of 2009 if the past billings and anticipated billings follow this same pattern. The actual and anticipated billings are as follows.

Fourth Quarter Actual Billings

First Quarter Anticipated Billings

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

$392,000

$323,000

$296,000

$340,000

$360,000

$408,000

Part B: Straight Bank Loan

Right Bank offers EAR loans of 9.38% and requires a monthly payment on all loans.

a. What is the APR for these monthly loans?

b. What is the monthly payment for the following?

1. A loan of $200,000 for six years
2. A loan of $450,000 for twelve years
3. A loan of $1,250,000 for thirty years

Part C: Selling Bonds

Astro Investment Bank has the following bond deals underway:

Company

Bond Yield

Commission

Coupon Rate

Maturity

Gravity Belts

8.0%

2% of Sale Price

8.0%

10 years

Invisible Rays

9.0%

3% of Sale Price

12.0%

10 years

Solar Glasses

7.0%

2% of Sale Price

5.0%

20 years

Space Ships

12.0%

4% of Sale Price

0%

20 years

Determine the net proceeds of each bond and the cost of the bonds for each company in terms of yield. The bond yield in the table is the market yield before the commission is charged. Assume that all bonds are semiannual and issued at a par value of $1,000.

Reference no: EM131213591

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