Question

37.  The current stock price for a company is $39 per share, and there are 8 million shares outstanding. This firm also has 130,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 8%, 16 years to maturity, a face value of $1,000, and an annual yield to maturity of 7.3%, what is the total market value of this firm? (Answer to the nearest dollar, but do not use a dollar sign).

38.  The current stock price for a company is $41 per share, and there are 5 million shares outstanding. This firm also has 50,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 8%, 19 years to maturity, a face value of $1,000, and a current price of 976.95, what is the percent market value of equity for this firm? (Answer to the nearest hundredth of a percent, but do not use a percent sign).

39.  The current stock price for a company is $38 per share, and there are 5 million shares outstanding. This firm also has 290,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 7%, 29 years to maturity, a face value of $1,000, and an annual yield to maturity of 7.8%, what is the percent market value of debt for this firm? (Answer to the nearest hundredth of a percent, but do not use a percent sign).

Answer 1

Answer of Part 37:

Equity:

Number of Common Stock = 8,000,000
Current Stock Price = $39

Value of Common Stock = Number of Common Stock * Current Stock Price
Value of Common Stock = 8,000,000 * $39
Value of Common Stock = $312,000,000

Debt:

Number of bonds outstanding = 130,000
Face Value = $1,000
Annual Coupon Rate = 8%
Semiannual Coupon Rate = 4%
Semiannual Coupon = 4%*$1,000 = $40
Time to Maturity = 16 years
Semiannual Period to Maturity = 32
Annual YTM = 7.3%
Semiannual YTM = 3.65%

Current Price = $40 * PVIFA(3.65%, 32) + $1,000 * PVIF(3.65%, 32)
Current Price = $40 * (1 - (1/1.0365)^32) / 0.0365 + $1,000 / 1.0365^32
Current Price = $1,065.44

Value of Debt = Number of bonds * Current Price
Value of Debt = $1,065.44 * 130,000
Value of Debt = $138,507,200

Market Value of Firm = Value of Common Stock + Value of Debt
Market Value of Firm = $312,000,000 + $138,507,200
Market Value of Firm = $450,507,200