Question

In: Accounting

Frusciante, Inc. has 285,000 bonds outstanding. The bonds have a par value of $1,000, a coupon...

Frusciante, Inc. has 285,000 bonds outstanding. The bonds have a par value of $1,000, a coupon rate of 6.9 percent paid semiannually, and 7 years to maturity. The current YTM on the bonds is 6.4 percent. The company also has 9 million shares of stock outstanding, with a market price of $27 per share. What is the company’s market value debt–equity ratio?

Solutions

Expert Solution

Step-1:Calculation of current value of bond
Semi annual period Cash flow Discount factor Present Value
1-14 $    34.50                     11.1436 $             384.45
14 $    1,000                        0.6434 $             643.40
Total $          1,027.86
Working:
Present Value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.032)^-14)/0.032 i 6.4%/2 = 0.032
=                     11.1436 n 7*2 = 14
Present Value of 1 = (1+i)^-n
= (1+0.032)^-14
=                        0.6434
Semi annual coupon interest = Par Value x Semi annual couopon rate
= $                      1,000 x 6.9%/2
= $                      34.50
Step-2:Calculation of selling value of total bonds
Total value of bonds = Total number of bonds x Selling price of a bond
(Debt) =                    2,85,000 x $          1,027.86
= $       29,29,39,817
Step-3:Calculation of total value of Equity
Total Market value of equity = Number of shares x Market price per share
(Equity) =                  90,00,000 x $                      27
= $       24,30,00,000
Step-4:Calculation of company’s market value debt–equity ratio
Company’s market value debt–equity ratio = Market Value of Debt/Market Value of Equity
= $ 29,29,39,817 / $ 24,30,00,000
= 1.21
Thus,
Company’s market value debt–equity ratio is           1.21

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

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.)
PP Inc. has outstanding bonds with an annual 8% coupon. The bonds have a par value...
PP Inc. has outstanding bonds with an annual 8% coupon. The bonds have a par value of $1,000 and a price of $865. The bonds will mature in 11 years. What is the yield to maturity on the bonds?
PP Inc. has outstanding bonds with an annual 8% coupon. The bonds have a par value...
PP Inc. has outstanding bonds with an annual 8% coupon. The bonds have a par value of $1000 and a price of $865. The bond will mature in 11 years. What is the yield to maturity on the bonds? Please show all workings. Do not Calculate using Excel
Again Inc. bonds have a par value of $1,000, 33 years to maturity and a coupon...
Again Inc. bonds have a par value of $1,000, 33 years to maturity and a coupon rate of 12% paid semiannually. The bonds are currently selling for $1,160. The bonds may be called in 4 years for 112 per 100 of par. What is your expected rate of return if the bond is called in 4 years? (yield to call) I don't know what I'm doing wrong plz do it in excel using the yield function. thank you
Mirha Corp has $40 million of outstanding bonds. The bonds have a $1,000 par value and...
Mirha Corp has $40 million of outstanding bonds. The bonds have a $1,000 par value and a 10% coupon rate. They were issued 5 years ago, with 25 years of original maturity, and flotation cost of $200,000. The firm could call these bonds at a 10% call premium. The firm has an opportunity to issue $40 million of bonds with maturity of 20 years and a 7.5% interest rate. The new bonds would require flotation costs of $250,000. To ensure...
29) Within Year, Inc. has bonds outstanding with a $1,000 par value and a maturity of...
29) Within Year, Inc. has bonds outstanding with a $1,000 par value and a maturity of 30 years. The bonds have an annual coupon rate of 8.0% with quarterly coupon payments. You would expect a quoted annual return of 17.0% if you purchased these bonds. What are the bonds worth to you? $494.04 $474.17 $2,020.50 $622.47 $1,876.38
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 8 years to...
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 8% semiannual coupon, 8 years to maturity, and an 10% YTM. What is the bond's price? Round your answer to the nearest cent.
Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 18 years to...
Nesmith Corporation's outstanding bonds have a $1,000 par value, an 8% semiannual coupon, 18 years to maturity, and a 10% YTM. What is the bond's price? Round your answer to the nearest cent.
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 7% semiannual coupon, 20 years to...
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 7% semiannual coupon, 20 years to maturity, and an 11% YTM. What is the bond's price? Round your answer to the nearest cent.
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 12% semiannual coupon, 16 years to...
Nesmith Corporation's outstanding bonds have a $1,000 par value, a 12% semiannual coupon, 16 years to maturity, and a 16% YTM. What is the bond's price? Round your answer to the nearest cent. $ =
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT