A zero coupon bond:
A. is sold at a large premium.
B. pays interest that is tax deductible to the issuer when paid.
C. can only be issued by the U.S. Treasury.
D. has more interest rate risk than a comparable coupon bond.
E. provides no taxable income to the bondholder until the bond matures.
J&J Enterprises is considering an investment that will cost $318,000. The investment
produces no cash flows for the first year. In the second year, the cash inflow is $47,000.
This inflow will increase to $198,000 and then $226,000 for the following two years,
respectively, before ceasing permanently. The firm requires a 15.5 percent rate of return
and has a required discounted payback period of three years. Should the project be
accepted? Why or why not?
A. accept; The discounted payback period is 2.18 years.
B. accept; The discounted payback period is 2.32 years.
C. accept; The discounted payback period is 2.98 years.
D. reject; The discounted payback period is 2.18 years.
E. reject; The project never pays back on a discounted basis.
Samuelson Engines wants to save $750,000 to buy some new equipment six years from
now. The plan is to set aside an equal amount of money on the first day of each quarter
starting today. The firm can earn 4.75 percent on its savings. How much does the firm
have to save each quarter to achieve its goal?