Essay 01

• Alpha Inc offers a 8% coupon bond with annual payments. The yield to maturity is 6.5% and the maturity date is 12 years. What is the market price of a RM 1,000 face value bond?

• Machine Trading (MT) Inc. is considering a 3 year project with an initial cost of RM 618,000. The project will not directly produce any sales but will reduce operating costs by RM 265,000 a year. The equipment is depreciated straight – line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated RM 60,000. The tax rate is 34%. The project will require RM 23,000 in extra inventory for spare part and accessories. Should this project be implemented if MT Inc requires a 9 % rate of return? Why or why not?

• The IRR rule is said to be a special case of the NPV rule. Explain why this is so and why it has some limitations that NPV does?