4. (10 marks) Short Essay Question Assume you are the CEO of a company that intends to issue $20 M in new bonds to help finance an expansion of your manufacturing facilities. A new employee eager to catch the ear of the CEO suggests that by lowering the coupon rate of interest on the bond you will be able to reduce interest payments on the debt, and therefore interest expense on the Income Statement, thus increasing overall profitability. Is the rationale for this suggestion a good one? Explain.

13. Briefly, what are the 3 sources of payment and return for any bullet, coupon paying bond in the US?

14. The discount rate used to calculate the PV of cash flows expected to be received in the future must consider 2 factors. In 3 to 4 words, what are they?

15. X-Co's zero-coupon bond has exactly 5 years to maturity. If it is currently selling for 71, what is its current yield? (Express your answer as a % carried to 2 decimal places.)

16. X-Co had a net loss of $100 million in the 3rd quarter, but its cash flow from operations was positive $700 million. In a few words, what is the most likely explanation?

17. If the nominal rate is 7.1% / year and inflation is 6.2%/year, what is the real interest rate? (Most credit for the exact calculation carried to 3 places.)

20. If X-Co has sales of $168, direct expense of $99, SG&A of $31, interest expense of $8 and taxes of $7, what is X-Co's net margin? **

18. If long term debt is $765, preferred stock is $142, and common equity is $951, what is LTD/capitalization?

11. You won the lottery and have settled on the annuity option that pays $500,000/year for 20 years. If you believe you can reliably earn 4%/year, what is its value to you now?

12. X-Co's 7% unsecured bond's price declined from 99.2 to 72.4. A) What are those prices in dollars? B) Did the market yield on X-Co's bond go up or down?