Question

In: Finance

Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization). Under the reorganization, the company has...

  1. Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization). Under the reorganization, the company has been allowed to reorganize their debt structure with a consolidated new deferral bond issue with more favorable terms. The new issue will be a 40- year, 12% coupon rate bond with semiannual coupons. However, under the bond indenture, the company is relieved of making interest payments (deferred interest) for the first 10 years. For the remaining 30 years, the regular interest payments would resume. The reorganization calls for the deferred interest to be paid in 3 equal installments: one payment occurring at the end of year 20, one at the end of year 25, and one at maturity.

    Calculate the value of a new $1,000 par value bond assuming a yield to maturity of 7%.

How do you calculate the answer using a financial calculator?

Solutions

Expert Solution

Price of the bond = ΣDiscounted cashflow = $1,014.18

Period refers to 6months

Period Type Cashflow PVF @ 3.5% Discounted cashflow (Cashflow*[email protected]%)
               21.0 Coupon              60                          0.4856           29.14
               22.0 Coupon              60                          0.4692           28.15
               23.0 Coupon              60                          0.4533           27.20
               24.0 Coupon              60                          0.4380           26.28
               25.0 Coupon              60                          0.4231           25.39
               26.0 Coupon              60                          0.4088           24.53
               27.0 Coupon              60                          0.3950           23.70
               28.0 Coupon              60                          0.3817           22.90
               29.0 Coupon              60                          0.3687           22.12
               30.0 Coupon              60                          0.3563           21.38
               31.0 Coupon              60                          0.3442           20.65
               32.0 Coupon              60                          0.3326           19.96
               33.0 Coupon              60                          0.3213           19.28
               34.0 Coupon              60                          0.3105           18.63
               35.0 Coupon              60                          0.3000           18.00
               36.0 Coupon              60                          0.2898           17.39
               37.0 Coupon              60                          0.2800           16.80
               38.0 Coupon              60                          0.2706           16.24
               39.0 Coupon              60                          0.2614           15.68
               40.0 Coupon              60                          0.2526           15.16
               40.0 One third of first 10 years coupon 400                          0.2526        101.04
               41.0 Coupon              60                          0.2440           14.64
               42.0 Coupon              60                          0.2358           14.15
               43.0 Coupon              60                          0.2278           13.67
               44.0 Coupon              60                          0.2201           13.21
               45.0 Coupon              60                          0.2127           12.76
               46.0 Coupon              60                          0.2055           12.33
               47.0 Coupon              60                          0.1985           11.91
               48.0 Coupon              60                          0.1918           11.51
               49.0 Coupon              60                          0.1853           11.12
               50.0 Coupon              60                          0.1791           10.75
               50.0 One third of first 10 years coupon 400                          0.1791           71.64
               51.0 Coupon              60                          0.1730           10.38
               52.0 Coupon              60                          0.1671           10.03
               53.0 Coupon              60                          0.1615             9.69
               54.0 Coupon              60                          0.1560             9.36
               55.0 Coupon              60                          0.1508             9.05
               56.0 Coupon              60                          0.1457             8.74
               57.0 Coupon              60                          0.1407             8.44
               58.0 Coupon              60                          0.1360             8.16
               59.0 Coupon              60                          0.1314             7.88
               60.0 Coupon              60                          0.1269             7.61
               61.0 Coupon              60                          0.1226             7.36
               62.0 Coupon              60                          0.1185             7.11
               63.0 Coupon              60                          0.1145             6.87
               64.0 Coupon              60                          0.1106             6.64
               65.0 Coupon              60                          0.1069             6.41
               66.0 Coupon              60                          0.1033             6.20
               67.0 Coupon              60                          0.0998       &n

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization). Under the reorganization, the company has...
Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization). Under the reorganization, the company has been allowed to reorganize their debt structure with a consolidated new deferral bond issue with more favorable terms. The new issue will be a 40- year, 12% coupon rate bond with semiannual coupons. However, under the bond indenture, the company is relieved of making interest payments (deferred interest) for the first 10 years. For the remaining 30 years, the regular interest payments would resume....
Firm A, under Chapter 11 bankruptcy proceedings, has an estimated going-concern reorganization value of $3.0 million....
Firm A, under Chapter 11 bankruptcy proceedings, has an estimated going-concern reorganization value of $3.0 million. The last pre-bankruptcy balance sheet of the firm is below (this shows the “old” capital structure). Assume that there are no other claims from any party. LAST PRE-BANKRUPTCY BALANCE SHEET ASSETS Current Assets                                             $1,250,000    Fixed Assets                                                  3,500,000     TOTAL ASSETS                                          $4,750,000 LIABILITIES and NET WORTH Senior Debt                                                    1,000,000 Subordinated Debt                                         3,000,000 Common Stockholders Equity    750,000    TOTAL LIABILITIES and NET WORTH   $4,750,000 Assume that the reorganized “new” capital structure must be...
Provide examples of companies that filed for Chapter 7 and Chapter 11 bankruptcy.
Provide examples of companies that filed for Chapter 7 and Chapter 11 bankruptcy.
A petition for the reorganization of the Boniface Company has been filed under the Insolvency Act....
A petition for the reorganization of the Boniface Company has been filed under the Insolvency Act. The trustees estimate the firm's liquidation value, after considering costs, is $140 million. Alternatively, the trustees, using the analysis of the Zulu Consulting firm, predict that the reorganized business will generate $18 million annual cash flows in perpetuity. The discount rate is 11%. Calculate the present value if the company is alive. (Enter the answer in millions. Round the final answer to 2 decimal...
As an investor, would you consider investing in a company that has filed Chapter 11? Why...
As an investor, would you consider investing in a company that has filed Chapter 11? Why or why not?
Rakes filed for relief in bankruptcy under Chapter 13. At the time of the filing he...
Rakes filed for relief in bankruptcy under Chapter 13. At the time of the filing he was behind on his home mortgage payable to Wade. The mortgage note did not have any provision for the accrual of interest on any arrearages. The home was valued for more than the balance due on the mortgage, and Rakes intended to retain the home following the bankruptcy. In his repayment plan Rakes proposed to make all future mortgage payments as due and to...
On November 12, Drowner filed for relief under the provisions of Chapter 7 of the Bankruptcy...
On November 12, Drowner filed for relief under the provisions of Chapter 7 of the Bankruptcy Code. Prior to filing, Drowner advised his attorney that he had engaged in the following activities and transactions. On June 1, he paid the equivalent of three mortgage payments on his home to Fidelity Funding. On August 15, his prior landlord seized $4,100 from his bank account to satisfy a three year old judgment for rent. On November 1, he (Drowner) paid off his...
On November 12, Drowner filed for relief under the provisions of Chapter 7 of the Bankruptcy...
On November 12, Drowner filed for relief under the provisions of Chapter 7 of the Bankruptcy Code. Prior to filing, Drowner advised his attorney that he had engaged in the following activities and transactions. On June 1, he paid the equivalent of three mortgage payments on his home to Fidelity Funding. On August 15, his prior landlord seized $4,100 from his bank account to satisfy a three year old judgment for rent. On November 1, he (Drowner) paid off his...
1 Lehman Brothers is a very well-known financial firm that has filed for Chapter 11 bankruptcy...
1 Lehman Brothers is a very well-known financial firm that has filed for Chapter 11 bankruptcy protection during 2008/2009 financial crisis. Then the economic situation was so bad the 135 years old firm that survived during 1930 great depression was unable to survive and ceased the operation and never return to market. In your ECON 200 class, you learnt the conditions at which the firms enter and exit from the market. Using a graph describes how and when in a...
Addison Corporation is currently going through a Chapter 11 bankruptcy. The company has the following account...
Addison Corporation is currently going through a Chapter 11 bankruptcy. The company has the following account balances for the current year.    Debit Credit   Advertising expense $ 39,000   Cost of goods sold 226,000   Depreciation expense 37,000   Interest expense 3,000   Interest revenue $ 37,000   Loss on closing of branch 124,000   Professional fees 86,000   Rent expense 31,000   Revenues 572,000   Salaries expense 85,000    Prepare an income statement for this organization. The effective tax rate is 30 percent (realization of any tax benefits...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT