Question

In: Finance

Assets Current assets                                       

Assets

Current assets                                                                             $ 31,200,000

Net plant, property, and equipment                                           124,800,000

Total assets                                                                               $156,000,000

Liabilities and Equity

Accounts payable                                                                       $ 11,000,000

Accruals                                                                                       10,000,000

Current liabilities                                                                       $ 21,000,000

Long-term debt (45,000 bonds, $1,000 par value)                     45,000,000

Total liabilities                                                                           $ 66,000,000

Common stock (8,000,000 shares)                                               40,000,000

Retained earnings                                                                       50,000,000

Total shareholders' equity                                                           90,000,000

Total liabilities and shareholders' equity                                  $156,000,000

The stock is currently selling for $10 per share. The callable bond price is $1,055 if it is called on year 5 and 15-year of maturity, providing 10% coupon rate with semiannual payments. The beta is 1.90 with risk free rate 5.00% and the current market rate of interest is 8%. The firm's tax rate is 30%.

Requirements:

  1. Value of Bond, Current Yield, YTC & YTM   
  2. Market Value of liabilities
  3. Why bond is selling at premium?
  4. WACC using book and market values
  5. Point out the capital and financial structure of the company.   

Solutions

Expert Solution

jeff jeffy answered 1 year ago
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