Question

In: Finance

Binomial Tree Farm’s financing includes $6.90 million of bank loans and $7.90 million book (face) value...

Binomial Tree Farm’s financing includes $6.90 million of bank loans and $7.90 million book (face) value of 10-year bonds, which are selling at 80% of par value. Its common equity is shown in Binomial’s Annual Report at $8.57. It has 690,000 shares of common stock outstanding which trade on the Wichita Stock Exchange at $35 per share. What debt ratio should Binomial use to calculate its WACC?

Solutions

Expert Solution

Debt ratio for Binomial = Total Debt/ Total capital

Total Debt= Bank loans + Market Value of Bonds = 6.90 M + 80% * 7.9 M = $ 13.22 M

Total Equity = Market price / share * Number of common stock outstanding = 35 * 690,000 = $ 24.15 M

Debt ratio = Debt/ (Debt + Equity) = 13.22/ (13.22 + 24.15) = 35.375% = 0.3537

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

how is bond financing advantageous to standard bank loans?
how is bond financing advantageous to standard bank loans?
Use a 2 step binomial tree to value a new exotic derivative. Draw the tree and...
Use a 2 step binomial tree to value a new exotic derivative. Draw the tree and label the stock prices and derivative values at each node. The option expires in 6 months. The interest rate is 10% annually continuously compounded. The Strike Price (K) is 100. The spot price is at 100. U= 1.2 and D= 0.8 for each quarterly period. The payoff of this derivative is (ST/K). By this I mean that the payoff is the price of the...
Use a 2 step binomial tree to value a new exotic derivative. Draw the tree and...
Use a 2 step binomial tree to value a new exotic derivative. Draw the tree and label the stock prices and derivative values at each node. The option expires in 6 months. The interest rate is 10% annually continuously compounded. The Strike Price (K) is 100. The spot price is at 100. U= 1.2 and D= 0.8 for each quarterly period. The payoff of this derivative is (ST/K). By this I mean that the payoff is the price of the...
Assume a bank’s assets are as follows: Asset Book value Weight Residual mortgage loans 200 million...
Assume a bank’s assets are as follows: Asset Book value Weight Residual mortgage loans 200 million 50% Treasury bills 100 million 0% Commercial loans 200 million 100% Total 500 million The minimum capital requirement is as follows: Tier I should be greater than 4% of the total book value. Tier I + Tier II capital should be greater than 8% of the risk weighted assets. 1. Assume the bank’s Tier I capital is 20 million and Tier II capital is...
Describe bond financing and discuss how bond financing may be advantageous to standard bank loans.
Describe bond financing and discuss how bond financing may be advantageous to standard bank loans.
9. Calculate the value of the following loans. Assume a face value of $100,000 and that...
9. Calculate the value of the following loans. Assume a face value of $100,000 and that the yield to maturity on each is 6%. All interest rates are stated as annual rates. a. a 3-year interest only mortgage with a coupon rate of 6.75%, monthly payments of interest, and the entire principal repaid at maturity. b. a 10-year, fully amortized mortgage with quarterly payments and an interest rate of 4.75%. 10. Calculate the duration of each loan from question 9.
Write the code to manage a Binary Tree. Each node in the binary tree includes an integer value and string.
Programming CWrite the code to manage a Binary Tree. Each node in the binary tree includes an integer value and string. The binary tree is sorted by the integer value. The functions include:• Insert into the binary tree. This function will take in as parameters: the root of the tree, the integer value, and the string. Note that this function requires you to create the node.• Find a node by integer value: This function takes in two parameters: the root...
Calculate u, d and p when a binomial tree is constructed to value an option on...
Calculate u, d and p when a binomial tree is constructed to value an option on a foreign currency. The tree step size is one month, the domestic interest rate is 0.50% per annum, the foreign interest rate is 0.10% per annum, and the volatility is 12% per annum. Use a three step binomial tree to value a 3m European call option on EUR/USD when spot is 1.08 $ per €, strike is 1.10 $ per €.
The total book value of WTC's equity is $13 million, and book value per share is...
The total book value of WTC's equity is $13 million, and book value per share is $20. The stock has a market-to-book ratio of 1.5, and the cost of equity is 9%. The firms bonds have a face value of $9 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 6% and the firm's tax rate is 21%. What is the company's WACC? (Do not round intermediate calculations. Enter your...
Consider a bank that has the following assets and liabilities: Loans of $100 million with a...
Consider a bank that has the following assets and liabilities: Loans of $100 million with a realized rate of 5% Security holdings of $50 million earning 10% interest income Reserves of $10 million Savings accounts of $100 million interest of 2.5% Checking deposits of $30 million which pay no interest Determine the profits for this bank. (Hint: The bank earns income, or revenues, not only from its loans but also from any securities it holds!)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT