1. Company Amliba.Inc is considering building a second headquarter in a new city. The new office...

1. Company Amliba.Inc is considering building a second headquarter in a new city. The new office will create 5000 new jobs for the city. So the government is incentivized to support the project.

The company plans to issue $100 million bond with coupon rate of 8%. Coupon will be paid annually and the bond matures in 5 year.

As a form of support, local government guarantee the bond, so the YTM of the bond at issuance is 5%.

Another bond with exactly the same features but without government guarantee is currently trading at a price that generate a YTM of 10%.

Calculate the value of the government guarantee to the firm. (Ignore taxes.)

Expert Solution

The current value to the firm is higher by $20,570,004 if the Government provides the Guarentee.

Thus, the value of the Government Guarentee is $20,570,004

Workings:

Current Value:

jeff jeffy answered 1 year ago

Q2. XYZ company is considering building a new office building. XYZ already owns a plot of land...

Q2. XYZ company is considering building a new office building. XYZ already owns a plot of land worth $2M and has paid an architectural firm $300k for building designs. Construction cost for the building is $1M. Projected rent income from the building is $400k/year and interest expense will be $300k/year. After three years XYZ expects to sell the building and land for $2.5M. If XYZ has a required rate of return of 10%, what is the NPV and IRR of building the office building? Please...

A city with 4% unemployment and no inflation is considering building a new stadium for its...

A city with 4% unemployment and no inflation is considering building a new stadium for its professional football team. The team currently plays in an old stadium owned by the city. It would cost city $500M (M for million) to demolish the old stadium and build a new one at the same location, which the city owns. The new stadium would be expected to last for 40 years and the city would finance the costs of the project by borrowing...

1. Shamrock Company recently signed a lease for a new office building, for a lease period...

1. Shamrock Company recently signed a lease for a new office building, for a lease period of 11 years. Under the lease agreement, a security deposit of $12,290 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 5% per year. Click here to view factor tables What amount will the company receive at the time the lease expires? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to...

A city government is considering building a new system of lighted bike paths. A counselor supporting...

A city government is considering building a new system of lighted bike paths. A counselor supporting their construction lists the following as potential benefits of the paths: (1) more enjoyable bike rides for current and future bikers, (2) reduced rush-hour automobile traffic due to increases in bike commuting, and (3) the creation of 15 construction-related jobs. Can all of these be considered benefits? Explain.

The city of Belgrade, Serbia, is contemplating building a second airport to relieve congestion at the...

The city of Belgrade, Serbia, is contemplating building a second airport to relieve congestion at the main airport and is considering two potential sites, X and Y. Hard Rock Hotels would like to purchase land to build a hotel at the new airport. The value of land has been rising in anticipation and is expected to skyrocket once the city decides between sites X and Y. Consequently, Hard Rock would like to purchase land now. Hard Rock will sell the...

Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis,...

Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows: Damage Decision Alternative None minor major s1 s 2 s 3 Purchase Insurance, d 1 10,000 10,000 10,000...

A company is considering the purchase of a 5-year old office building. After a careful review...

A company is considering the purchase of a 5-year old office building. After a careful review of the market and the leases that are in place, it believes that next year’s net operating income will be $100,000. It also believes that this cash flow will rise in the amount of $5,000 each year for the first 6 years after the first year, after which it is expected to grow by 4 percent per year in the foreseeable future. It plans...

Based on this information, in which city should you open a second office in? Based on...

Based on this information, in which city should you open a second office in? Based on the MLR output, what variable(s) is/are significant? Based on the descriptive statistics, for the significant predictors, what city/cities has the best potential? What city or cities fall above or below the median and/or the mean? What city or cities are in the upper 3rd quartile? Or the bottom quartile? These are some things to consider not necessarily questions you need to answer in your...

Based on this information, in which city should you open a second office in and justify...

Based on this information, in which city should you open a second office in and justify your answer based upon the provided results of the Multiple Linear Regression. If you want to recommend 2 or 3 different cities and rank them based on the data and your findings, this is fine as well. Based on the MLR output, what variable(s) is/are significant? From the significant predictors, review the mean, median, min, max, Q1 and Q3 values? It might be a...

Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri.

Alexander Industries is considering purchasing an insurance policy for its new office building in St. Louis, Missouri. The policy has an annual cost of $10,000. If Alexander Industries doesn’t purchase the insurance and minor fire damage occurs, a cost of $100,000 is anticipated; the cost if major or total destruction occurs is $200,000. The costs, including the state-of-nature probabilities, are as follows:NoneMinorMajorDecision Alternatives1s2s3Purchase insurance, d110,00010,00010,000Do not purchase insurance, d20100,000200,000Probabilities0.960.030.01What lottery would you use to assess utilities? (Note: Because the data...

Question