Your probationary period at the Cosmo K Manufacturing Groupcontinues. Your supervisor, Gerry, assigns you a project each week totest your competence in finance. This week, Gerry has asked you toevaluate several investment opportunities available to the company. Yourinstructions are to consider each situation independently of theothers, unless otherwise indicated.

Evaluating Investment Opportunities

Consider the following situations and answer the related questions:

• Yourcompany has the opportunity to make an investment that promises to pay$24,000 after years. If your company has a required return of 8.5% onthis type of investment, what is the maximum amount that the companyshould pay for the investment? Explain your answer.
• In theprevious scenario, assume that your company negotiated a deal where itwould pay $12,000 for the investment and receive a payment of $24,000 atthe end of 7 years. What is the IRR on this investment? Should thecompany make the investment? Explain your answer.
• Anotherinvestment opportunity available to your company involves the purchaseof some common stock from Zorp Corporation. The company has asked you toevaluate the stock, which paid a dividend of $4.25 last year and iscurrently selling for $36 per share. If your company decides to buy thestock, the stock will be held for 5 years and then sold. The growth rateon the stock is constant at 3% per year, and your company's requiredreturn on the stock would be 11%. What is the maximum price per sharethat your company should pay for the stock?
• Zorp Corporationalso has some bonds for sale that your company is considering. Thesebonds have a $1,000 par value and will mature in 16 years. The couponrate on the bonds is 5% paid annually, and they are currently sellingfor $987 each. The bonds are call protected for the next 4 years, andafter this period, they are callable at 105. On the basis of thisinformation, answer the following questions:
  • What is the YTM on these bonds?
  • If the bonds are called immediately after the call protection period, what would be the yield to call (YTC)?
  • If the bonds paid interest semiannually instead of annually, would the YTC, the YTM, or both change? Explain your answers.

Submission Details:

• Showthe data used and the calculations for each question in a MicrosoftExcel sheet and write the analyses in a Microsoft Word document.
• Name your Microsoft Excel sheet MBA6010_W2_A2_LastName_
  FirstName.xls and Microsoft Word document MBA6010_W2_A2_
  LastName_FirstName.doc.