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 2 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...
Converse Company has a bond currently outstanding. The bond has a face value of $1,000 and...
Converse Company has a bond currently outstanding. The bond has
a face value of $1,000 and matures in 10 years. The bond makes no
coupon payments for the first three years, then pays $40 every six
months over the subsequent four years, and finally pays $60 every
six months over the last three years. If the required return on
these bonds is 6.2 percent compounded semiannually, what is the
current price of the bond? (Hint: it may be useful to...
Up and Coming Yoga has an outstanding bond issue that is currently selling for $945.55 The...
Up and Coming Yoga has an outstanding bond issue that is
currently selling for $945.55 The bond pays a semi-annual coupon at
an annual rate of 8.55% and matures in 19 years. Using approximate
formulas, what is the modified duration and convexity of this bond?
Using duration and convexity measures you computed, calculate the
change in price of this bond if the yield goes up by 30 basis
points.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 1. Write an if-else statement to describe an object. Print "Balloon" if isBalloon is true and...
- An investor is considering purchasing a Treasury bond with a 20 year maturity, an 8% coupon...
- Write a program that copies the contents of one file to a destination file. This program...
- how to conduct a marketing mix for 3d crest white strips
- Is big data analytics used for service innovation at Amazon? If so, please write a brief...
- A shrink-fit process has been used to enhance the pressure carrying capacity of a cylinder. During...
- Ten-year zero coupon bonds issued by the U.S. Treasury have a face value of $1,000 and...
ADVERTISEMENT