Edgehill, Inc. has 275,000 bonds outstanding. The bonds have a par value of $1,000, a coupon...

Edgehill, Inc. has 275,000 bonds outstanding. The bonds have a par value of $1,000, a coupon rate of 5.2 percent paid semiannually, and 9 years to maturity. The current YTM on the bonds is 5.6 percent. The company also has 10 million shares of stock outstanding, with a market price of $21 per share. What is the company’s market value debt-equity ratio? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

Expert Solution

Semi annual rate = 5.6% / 2 = 2.8%

Number of periods = 9 * 2 = 18

Semi annual coupon = [(5.2 / 100) * 1000] / 2 = 26

Price = Coupon * [1 - 1 / (1 + rate)^time] / rate + Face value / (1 + rate)^time

Price = 26 * [1 - 1 / (1 + 0.028)^18] / 0.028 + 1000 / (1 + 0.028)^18

Price = 26 * [1 - 0.60831] / 0.028 + 608.30857

Price = 26 * 13.98898 + 608.30857

Price = $972.02204

Market value of debt = 972.02204 * 275,000 = 267,306,061.2

Market value of equity = 10,000,000 * 21 = 210,000,000

Debt to equity ratio = 267,306,061.2 / 210,000,000

Debt to equity ratio = 1.273

jeff jeffy answered 2 years ago

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Edgehill, Inc. has 275,000 bonds outstanding. The bonds have a par value of $1,000, a coupon...

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