1. If a security that matures in 91 days has a money market yield of 3.6%, what is the security's bond-equivalent yield?
2. What is the present value of an ordinary annuity of $271.29 per month for 12 years, evaluated at a nominal annual interest rate of 13.6 percent?
3. Kelly's Photos Now, Inc. currently has annual cash revenues of $500,000 and annual operating expenses of $325,000 including $75,000 in depreciation. The firm's marginal tax rate is 40 percent. New enhanced developing equipment can be purchased for $100,000. The equipment will not increase revenues, but will cut operating expenses by $4,000. The investment will increase depreciation by $1,500. Compute Kelly's annual incremental after-tax net cash flows.
a. $1,800
b. $2,500
c. $5,500
d. $3,000
e. None of the answers provided is correct