1. You believe you can earn 6% a year, every year, on your investments. You are going to invest the same amount, at the end of every year, for 40 years. Then, the following year, and 29 years after that (for a total of 30 years), you will withdraw an amount of money - the same each year. The amount you withdraw is different than the amount you invest.

If you wish to withdraw $50,000 a year, how much do you have to invest each year?

2. You have a bond with a 10 year maturity, coupon rate of 5%, and a price of $900. The bond pays semiannual coupons. 

What is the YTM?

What is the current yield?

What is the capital gains yield?

3. What is the NPV and IRR of the following project? The required rate of return is 15%

Year                         Cashflows

0                              -100,000

1                              10,000

2                              20,000

3                              30,000

4 and on                   20,000 

The project will pay 20,000 from year 4 in perpetuity.  

4. Refer to the budgeting HW assignment. Recalculate the FCF and NPV if:

The project now has a life of 10 years. 

The annual overheard increases from $3 million by 10% each year

Sales will decline by 5% a year starting in year 7 (year 7 will show a decline)

5. Heavy Metal Corporation is expected to generate the following free cash flows over the next five years:

Year                                  1              2              3              4              

FCF ($ millions)                  53           -10          78           134        

After them the free cash flows are expected to grow at the industry average of 8% per year. Using the discounted FCF model and a weighted average cost of capital of 14%:

a) Estimate the enterprise value of Heavy Metal.

b) If Heavy Metal has $100 million in cash, debt of $300 million, warrants of $10 million and 40 million shares outstanding, estimate its share price.