Question
In: Finance
Madison Square Stores has a $20 million bond issue outstanding that currently has a market value...
Madison Square Stores has a $20 million bond issue outstanding that currently has a market value of $19.4 million. The bonds mature in 6.5 years and pay semiannual interest payments of $35 each. What is the firm's pretax cost of debt? 7.74 percent 7.80 percent 7.59 percent 7.08 percent 8.21 percent
Solutions
Expert Solution
| Semi-annaul interest payment | 35.00 | ||||
| Annaul interest payment | 70.00 | ||||
| Face value | 20 million | ||||
| Market value | 19.4 million | ||||
| Assume face value | 1000 | ||||
| Market value will be | 970 | ||||
| Value of equation = 970 =35/(1-(1+r)^-13))+(1000/(1+r)^13 | 0.0774 | 0.078 | 0.0759 | 0.0708 | 0.0821 |
| Maturity value formula | 534.20101 | 537.18462 | 526.6295089 | 499.62989 | 556.90931 |
| YTM= (Interest-to be taken yearly+(Face value-market value)/n)/(face value+market value)/2 | 0.0757517 | ||||
Pick 7.59%
jeff jeffy answered 3 years agoRelated Solutions
Currently the firm has total market value of debt $20 million and total market value of...
Currently the firm has total market value of debt $20 million
and total market value of equity $60 million. This capital
structure is considered optimal by the management. The optimal
capital budget for new investment for the coming period is
determined to be $15 million. The total net income is estimated to
be $20 million. The firm has 5 million common shares outstanding.
The most recent dividend per share is $1 and the management intends
to maintain it for the...
Little Oil has outstanding one million shares with a total market value of $20 million. The...
Little Oil has outstanding one million shares with a total
market value of $20 million. The firm is expected to pay $1 million
of dividends next year, and thereafter the amount paid out is
expected to grow by 5% a year in perpetuity. Thus the expected
dividend is $1.05 million in year 2, $1.1025 million in year 3, and
so on. However, the company has heard that the value of a share
depends on the flow of dividends, and therefore...
J&J has an outstanding issue of 20- year maturity bond with face value of $1,000 and...
J&J has an outstanding issue of 20- year maturity bond with
face value of $1,000 and a coupon of 8%, paying coupon interest
semi-annually. If the market price of this bond is $1200, what is
the rate of return investors are demanding on this bond?
The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The...
The Imaginary Products Co. currently has debt with a market
value of $300 million outstanding. The debt consists of 9 percent
coupon bonds (semiannual coupon payments) which have a maturity of
15 years and are currently priced at $915.93 per bond. The firm
also has an issue of 2 million preferred shares outstanding with a
market price of $29. The preferred shares pay an annual dividend of
$1.20. Imaginary also has 14 million shares of common stock
outstanding with a...
The Imaginary Products Co. currently has debt with a market value of $300 million outstanding. The...
The Imaginary Products Co. currently has debt with a market
value of $300 million outstanding.
The debt consists of 10 percent coupon bonds (semiannual coupon
payments) which have a
maturity of 15 years and are currently priced at $1,440.03 per
bond. The firm also has an issue
of 4 million preferred shares outstanding with a market price of
$14.00 per share. The preferred
shares pay an annual dividend of $1.20. Imaginary also has 12
million shares of common stock
outstanding...
The Wildhorse Products Co. currently has debt with a market value of $200 million outstanding. The...
The Wildhorse Products Co. currently has debt with a market
value of $200 million outstanding. The debt consists of 9 percent
coupon bonds (semiannual coupon payments) which have a maturity of
15 years and are currently priced at $1,434.63 per bond. The firm
also has an issue of 2 million preferred shares outstanding with a
market price of $16 per share. The preferred shares pay an annual
dividend of $1.20. Wildhorse also has 14 million shares of common
stock outstanding...
The Cullumber Products Co. currently has debt with a market value of $300 million outstanding. The...
The Cullumber Products Co. currently has debt with a market
value of $300 million outstanding. The debt consists of 9 percent
coupon bonds (semiannual coupon payments) which have a maturity of
15 years and are currently priced at $1,429.26 per bond. The firm
also has an issue of 2 million preferred shares outstanding with a
market price of $20 per share. The preferred shares pay an annual
dividend of $1.20. Cullumber also has 14 million shares of common
stock outstanding...
The Cullumber Products Co. currently has debt with a market value of $225 million outstanding. The...
The
Cullumber Products Co. currently has debt with a market value of
$225 million outstanding. The debt consists of 9 percent coupon
bonds (semiannual coupon payments) which have a maturity of 15
years and are currently priced at $1,423.92 per bond. The firm also
has an issue of 2 million preferred shares outstanding with a
market price of $13 per share. The preferred shares pay an annual
dividend of $1.20. Cullumber also has 14 million shares of common
stock outstanding...
The Pharoah Products Co. currently has debt with a market value of $275 million outstanding. The...
The Pharoah Products Co. currently has debt with a market value
of $275 million outstanding. The debt consists of 9 percent coupon
bonds (semiannual coupon payments) which have a maturity of 15
years and are currently priced at $1,429.26 per bond. The firm also
has an issue of 2 million preferred shares outstanding with a
market price of $17 per share. The preferred shares pay an annual
dividend of $1.20. Pharoah also has 14 million shares of common
stock outstanding...
The Pharoah Products Co. currently has debt with a market value of $200 million outstanding. The...
The Pharoah Products Co. currently has debt with a market value
of $200 million outstanding. The debt consists of 9 percent coupon
bonds (semiannual coupon payments) which have a maturity of 15
years and are currently priced at $1,418.61 per bond. The firm also
has an issue of 2 million preferred shares outstanding with a
market price of $18 per share. The preferred shares pay an annual
dividend of $1.20. Pharoah also has 14 million shares of common
stock outstanding...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The correlation between X and Y ______________. Question options: measures the variation around the predicted regression...
- Will iron(III) hydroxide precipitate from a pH = 1.00 solution with [Fe3+] = 1.0 x 10-5?...
- What do you believe happens during the final scene of the story between the brothers at....
- A 5.171 g sample of a solid, weak, monoprotic acid is used to make a 100.0...
- 1. Creep is one of deformation that occurred in concrete structure. Give one example that can...
- Why does a particular codon represent only one specific amino acid?
- Write a function template sort that takes two references to generic objects and switches them if...
ADVERTISEMENT