Closter, Inc., has a bond issue with a face value of $1,000 that is coming due...

Closter, Inc., has a bond issue with a face value of $1,000 that is coming due in one year. The value of the company’s assets is currently $1,180. Ashok Vora, the CEO, believes that the assets in the company will be worth either $970 or $1,470 in a year. The going rate on one-year T-bills is 6 percent.

a-1.

What is the value of the company’s equity?

a-2.

What is the value of the debt?

Suppose the company can reconfigure its existing assets in such a way that the value in a year will be $890 or $1,690.

b.	If the current value of the assets is unchanged, what is the new value of the company's equity?

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago

Buckeye Industries has a bond issue with a face value of $1,000 that is coming due...

Buckeye Industries has a bond issue with a face value of $1,000 that is coming due in one year. The value of the company’s assets is currently $1,140. Urban Meyer, the CEO, believes that the assets in the company will be worth either $970 or $1,430 in a year. The going rate on one-year T-bills is 6 percent. a-1. What is the value of the company’s equity? (Do not round intermediate calculations and round your answer to 2 decimal places,...

Campbell, Inc., has a $1,000 face value convertible bond issue that is currently selling in the...

Campbell, Inc., has a $1,000 face value convertible bond issue that is currently selling in the market for $990. Each bond is exchangeable at any time for 24 shares of the company’s stock. The convertible bond has a 6.9 percent coupon, payable semiannually. Similar nonconvertible bonds are priced to yield 9 percent. The bond matures in 10 years. Stock in the company sells for $40 per share. a-1. What is the conversion ratio? a-2. What is the conversion price?...

Creative Financing Inc. is planing to issue a 15-year, $1,000 face value bond with a coupon...

Creative Financing Inc. is planing to issue a 15-year, $1,000 face value bond with a coupon rate that changes every five years. The coupon rate for the first five years is 10%, 10.75% the next five years, and 11.5% for the remaining five years. If the yield on this bond is 11%, how much would you be willing to pay for this bond?

You learned that XYZ, Inc. has a bond with $1,000 face value. The bond carries a...

You learned that XYZ, Inc. has a bond with $1,000 face value. The bond carries a 9% coupon, paid semiannually, and matures in 15 years. What is the fair market value of the bond if the yield to maturity is only 7%? (Round your answer to the nearest hundredth; two decimal places)

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?

Empress Inc. has issued a bond with a face value of $1,000 and an interest rate...

Empress Inc. has issued a bond with a face value of $1,000 and an interest rate of 9% to fund a new project. The bond is secured by the cash flows from the project, which will be $950 with a probability of 50% and $1,200 otherwise. Assume risk neutrality. What is the appropriate cost of capital for the project?

7. [Calculating firm value with options] SUNNY Inc. has a bond issue with a face value...

7. [Calculating firm value with options] SUNNY Inc. has a bond issue with a face value of $1,000 that is coming due in one year. The value of the company’s assets is currently $1,040. Dr. Min, the CEO, believes that the assets in the company will be worth either $940 or $1,270 in a year. The going rate on one-year T-bills is 4.8% i. What is the value of the company’s equity? ii. What is the value of the debt?...

Bond Valuation A corporate bond has a face value of $1,000. The bond has an 8%...

Bond Valuation A corporate bond has a face value of $1,000. The bond has an 8% coupon rate and it has 13 years to maturity. The interest rate on similar bonds is 6%. Assume interest is paid annually. What is the current price of this bond? Assume everything in #1 above, except the interest rate on similar bonds is 4%. What is the current price of this bond? Assume everything in #1 above, except the interest rate on similar bonds...

A $1,000 face value bond has a yield to maturity of 12.72%. The bond has a...

A $1,000 face value bond has a yield to maturity of 12.72%. The bond has a coupon rate of 13% and pays semiannual coupons/ The bond matures in 7 years. What is the price of the bond?

Maschale Corp. wants to issue bonds with a zero coupon bond, a face value of $1,000,...

Maschale Corp. wants to issue bonds with a zero coupon bond, a face value of $1,000, and 12 years to maturity. Maschale estimates that the bonds will sell for $384. Maschale Corp. common stock currently sells for $30 per share. Maschale paid a dividend yesterday of $4.00 per share and expects the dividend to grow at a constant rate of 5% per year. Maschaleʹs capital structure is $4 million debt, $6 million common equity and $5 million preferred stock which...

Question