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1) The Charles Barkley Fitness Club is looking to enlarge its present facility by adding up space for more weights, cardio equipment, and made-to-order donut bar. Expansion and equipment investments will cost= $900,000 initially and have useful life of fifteen years and salvage value of= $15,000. The extra area will attract 500 customers a year, paying= $20 a month, but will cost the additional= $20,000 annually to sustain. Because of Barkley’s credit, cost of capital is only= 6%. Charles Barkley is in 35% tax bracket. Is this a wise investment? Illustrate your answer.

2) D. J. Masson Inc. just issued non-callable bonds which mature in ten years. They have a par value of $1,000 and the annual coupon of= 5.5%. If present market interest rate is= 7.0%, at what price must the bonds sell?

i) $829.21
ii) $850.47
iii) $872.28

Basic Finance, Finance

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