Question
In: Finance
On January 31 , a firm learns that it will have additional funds available on May31....
On January 31 , a firm learns that it will have additional funds available on May31. It will use the funds to purchase $5,000,000 par value of the APCO 9 ½ percent bonds maturing in about 21years. Interest is paid semiannually on March1 and September1. The bonds are rated A2 by Moody’s and are selling for 78 7/8 per 100 and yielding 12.32 percent. The modified duration is 7.81. The firm is considering hedging the anticipated purchase with September T-bond futures. The futures price is 71 8/32. The firm believes that the futures contract is tracking the Treasury bond with a coupon of 12 3/4 percent and maturing in about 25 years. It has determined that the implied yield on the futures contract is 11.40 percent and the modified duration of the contract is 8.32. The firm believes that the APCO bond yield will change 1 point for every1-point change in the yield on the bond underlying the futures contract.
a. Determine the transaction the firm should conduct on January 31 to set up the hedge.
b. On May 31, the APCO bonds were priced at 82 3/4. The September futures price was 76 14/32. Determine the outcome of the hedge
Solutions
jeff jeffy answered 2 years agoRelated Solutions
1. With a full capacity, the need of additional funds of a firm is reduced by...
1. With a full capacity, the need of additional funds of a firm
is reduced by
a) Spontaneous growth of current liabilities
b) Spontaneous growth of current assets
c) A sharp increase in forecasted sales
d) A moderate growth of dividends
2. For any positive growth in forecasted sales, which of the
following firm will most likely require no immediate financing?
a) Firms with short production cycles
b) Firms with an under-utilization of its fixed assets
c) Firms with a...
28) The additional funds needed by the firm can be calculated by assuming which of the...
28) The additional funds needed by the firm can be
calculated by assuming which of the following?
A) The firm's additional sales will grow proportionately as
assets are purchased.
B) The firm's additional capital needed will grow proportionately
with projected changes in sales.
C) The firm's balance sheet will grow proportionately with
projected changes in sales.
D) The firm's additional sales will grow proportionately as capital
is brought on to the balance sheet.
Evaluate the choices available to a private firm when deciding to raise additional capital
Evaluate the choices available to a private firm when deciding
to raise additional capital
The following data are available for Sellco for the fiscal year ended on January 31,...
The following data are available for Sellco for the fiscal year
ended on January 31, 2017:
Sales
770
units
Beginning inventory
240
units
@
$
3
Purchases, in chronological order
320
units
@
$
4
400
units
@
$
7
220
units
@
$
7
Required:
a. Calculate cost of goods sold and ending
inventory under the cost flow assumptions, FIFO, LIFO and Weighted
average (using a periodic inventory system): (Round unit
cost to 2 decimal places.)
Cost of...
When a firm needs to raise additional funds, it can potentially obtain them from 3 different...
When a firm needs to raise additional funds, it can potentially
obtain them from 3 different sources: external debt, external
equity, and internal sources of cash. Based on the pecking order
theory, in what order would a firm raise money from these three
sources? Why?
The following data are available for Sellco for the fiscal year ended on January 31, 2017:...
The following data are available for Sellco for the fiscal year
ended on January 31, 2017:
Sales
750
units
Beginning inventory
230
units
@
$
4
Purchases, in chronological
order
300
units
@
$
4
450
units
@
$
7
210
units
@
$
8
Required:
a. Calculate cost of goods sold and ending
inventory under the cost flow assumptions, FIFO, LIFO and Weighted
average (using a periodic inventory system): (Round unit
cost to 2 decimal places.)
b. Assume that...
The following data are available for Hollis for the fiscal year ended on January 31, 2020:...
The following data are available for Hollis for the fiscal year
ended on January 31, 2020:
Sales
810
units
Beginning inventory
260
units
@
$
3
Purchases, in chronological order
340
units
@
$
4
430
units
@
$
6
240
units
@
$
8
Required:
a. Calculate cost of goods sold and ending inventory under
the cost flow assumptions, FIFO, LIFO and Weighted average (using a
periodic inventory system): (Round unit cost to 2 decimal
places.)
b. Assume that...
The following data are available for Sellco for the fiscal year ended on January 31, 2020:...
The following data are
available for Sellco for the fiscal year ended on January 31,
2020:
Sales
750
units
Beginning inventory
280
units
@
$
3
Purchases, in chronological order
300
units
@
$
5
420
units
@
$
7
240
units
@
$
7
Required:
a. Calculate cost of goods sold and ending inventory under
the cost flow assumptions, FIFO, LIFO and Weighted average (using a
periodic inventory system): (Round unit cost to 2 decimal
places.)
Cost of...
The following data are available for Sellco for the fiscal year ended on January 31, 2017:...
The following data are
available for Sellco for the fiscal year ended on January 31,
2017:
Sales
850
units
Beginning
inventory
230
units
@
$
3
Purchases, in
chronological order
330
units
@
$
5
420
units
@
$
7
190
units
@
$
8
Required:
a.
Calculate cost of goods sold and ending inventory under the cost
flow assumptions, FIFO, LIFO and Weighted average (using a periodic
inventory system): (Round unit cost to 2 decimal
places.)
Cost of
Goods...
You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington...
You have been asked to forecast the additional funds needed
(AFN) for Houston, Hargrove, & Worthington (HHW), which is
planning its operation for the coming year. The firm is operating
at full capacity. Data for use in the forecast are shown below.
However, the CEO is concerned about the impact of a change in the
payout ratio from the 10% that was used in the past to 30%, which
the firm's investment bankers have recommended. Based on the AFN
equation,...
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