Assume interest payments are made semiannually and determine the present value of the bonds cash flow if the required rate of return is 16.64 percent .

The present value of the Garcia Company’s bond cash flow can be determined by using the discounted cash flow model, which takes into account the time value of money.

Here are the steps to calculate the present value of the bond cash flow:

1. Determine the annual coupon payment by multiplying the coupon rate of 16% by the face value of $1000, which equals $160.
2. Divide the coupon payment by 2 to get the semi-annual coupon payment, which equals $80.
3. Divide the required rate of return by 2, since the coupon payments are made semi-annually. In this case, 16.64% / 2 = 8.32%.
4. Using the formula, PV = C / (1 + r)^t, where C is the semi-annual coupon payment, r is the semi-annual required rate of return and t is the number of semi-annual periods.
5. Use the formula for all semi-annual periods until maturity 10 years, in this case 10*2 =20 semi-annual periods
6. Add the present value of the bond’s cash flows to the present value of the face value, which is $1000 / (1 + 8.32%)^20

The present value of the bond’s cash flows is the sum of the present value of all semi-annual cash flows plus the present value of the face value, which is the amount that the bond would be worth if it were sold today.

The present value of the bond’s cash flow is less than the face value of the bond, because the bondholder will receive cash flows in the future and these cash flows are discounted to take account of the time value of money, which is the required rate of return.