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To Finance a New Line of Product, the Tangshan Toys

question 102

Essay

To finance a new line of product, the Tangshan Toys has issued $1,000,000 bond with a par value of $1,000, coupon rate of 8 percent, and maturity of 30 years. Compute the price of the bond if the opportunity cost is 11 percent.


Definitions:

Discount Factor

A multiplier used in discounted cash flow (DCF) analysis to calculate the present value of future cash flows.

Profitability Index

A calculation that compares the present value of future cash flows to the initial investment, used in capital budgeting to determine the desirability of an investment.

Investment Projects

Projects undertaken by individuals or companies involving the investment of capital for future gain.

Cash Outflows

Money or value flowing out of a business, typically related to expenses or investments.

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