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NPV Valuations and Bonds

Question Description

  1. Using the cash flows below, what is the NPV of all the cashflows using an interest rate of 10% ?
    • Now: – $120
    • After 1 year: + $20
    • After 2 years: + $90
    • After 3 years: – $10
    • After 4 years: + $30
    • After 5 years: + $30
    • After 6 years: + $30
    • After 7 years: + $40
  1. Jim D'Addario, of the well-known guitar and bass string factory D'Addario Strings in Long Island, NY, is considering two new designs for more efficient and higher quality machines (the company has won many manufacturing and product patents in the field). Assume machine A costs $750,000 to make and is expected to return the following net earnings over five years, after which time it is retired: $10, $9, $8, $7, and $6 million, respectively. Assume machine B costs $850,000 to make and is expected to return the following net earnings over five years, after which time it is also retired: $10.1, $9.1, $8.1, $7.1, and $6.1 million, respectively. All other things being equal, which design should Jim go with if he is using a discount rate of 7%. Hint: Use NPV analysis.
    • A bond of Boston Scientific Corp is trading at 113.22, pays a coupon rate of 6.250%, and matures in three semesters. Using the bond yield calculator, its yield to maturity is found to be _______.
    • "Like other bonds, Boston Scientific's market price adjusts to interest rate conditions at the time. Further, its yield reflects the state of interest rates in the money markets at the time of calculation." Please comment on this statement.
    • What seems to be the focus of Jason Mendelson's music investments and what is not?
    • What changes does Mendelson see in music financing?
    • Does Mendelson say that VCs are completely avoiding investments in businesses that don't clear the appropriate licensing rights for music?
    • Why does Mendelson see Europe as a harder market for venture capital than the United States or Brazil?

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