Question
In: Finance
Suppose a firm has $7,069,714 in 18 year capital debt on its balance sheet at a...
Suppose a firm has $7,069,714 in 18 year capital debt on its balance sheet at a coupon rate of 6.53%. The debt was issued 9 years ago and pays interest semi-annually in a market in which similar debt is yielding 9.79%. What is the market value of the firm's capital debt? You can assume the debt is in the form of bonds, each having a face value of $1,000.
Solutions
Expert Solution
Remaining term is 9 years that is 18 interest periods.
| Particulars | Cash flow | Discount factor | Discounted cash flow |
| present value Interest payments-Annuity (4.895%,18 periods) | $ 230,826.16 | 11.78608 | $ 2,720,534.80 |
| Present value of bond face amount -Present value (4.895%,18 periods) | $ 7,069,714.00 | 0.42307 | $ 2,990,994.91 |
| Bond price | $ 5,711,529.71 | ||
| Face value | $ 7,069,714.00 | ||
| Premium/(Discount) | $ (1,358,184.29) | ||
| Interest amount: | |||
| Face value | 7,069,714 | ||
| Coupon/stated Rate of interest | 6.530% | ||
| Frequency of payment(once in) | 6 months | ||
| Interest amount | 7069714*0.0653*6/12= | $ 230,826.16 | |
| Present value calculation: | |||
| yield to maturity/Effective rate | 9.79% | ||
| Effective interest per period(i) | 0.0979*6/12= | 4.895% |
Market value of debt is 5,711,529.71
jeff jeffy answered 1 year agoRelated Solutions
Firm XYZ has· £20M in equity and £1OM of debt in its balance sheet. All values...
Firm XYZ has· £20M
in equity and £1OM of debt in its balance sheet. All values are in
market values. XYZ's financial policy is to keep a constant
debt-to-capital ratio. Assume that the CAPM relation holds, the
risk-free rate is 6%, and the expected market risk premium is 5%.
The corporate tax rate is 40%. Choose those statements that are
correct:
a. If XYZ's equity
beta is 1 and its debt beta is zero, XYZ's asset beta is 0.73.
b....
Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of...
Suppose there are no taxes. Firm ABC has no debt, and firm XYZ
has debt of $4,000 on which it pays interest of 10% each year. Both
companies have identical projects that generate free cash flows of
$4,700 or $4,200 each year. After paying any interest on debt,
both companies use all remaining free cash flows to pay dividends
each year.
a. In the table below, fill in the debt payments for each firm
and the dividend payments the equity...
Debt-free, Inc., an unlevered firm, is planning to use debt in its capital structure. The firm...
Debt-free, Inc., an unlevered firm, is planning to use debt in
its capital structure. The firm currently has 5,000 shares
outstanding trading at $60 per share. The firm plans to sell 150 6%
annual-coupon, 10-year bonds at their face values of $1,000 each
and use the proceeds to repurchase some of its shares. When the
bonds mature, Debt-free, Inc. plans to reissue new bonds to pay off
the principal and to “roll over” its debt this way indefinitely.
Assume the...
The Western Pipe Company has the following capital section in its balance sheet. Its stock is...
The Western Pipe Company has the following capital section in
its balance sheet. Its stock is currently selling for $6 per
share.
Common stock (55,000
shares at $1 par)
$
55,000
Capital in excess of
par
55,000
Retained
earnings
180,000
Total equity
$
290,000
The firm intends to first declare a 5 percent stock dividend and
then pay a 10-cent cash dividend (which also causes a reduction of
retained earnings).
Show the capital section of the balance sheet after the...
The Western Pipe Company has the following capital section in its balance sheet. Its stock is...
The Western Pipe Company has the following capital section in
its balance sheet. Its stock is currently selling for $5 per
share.
Common stock (65,000
shares at $1 par)
$
65,000
Capital in excess of
par
65,000
Retained
earnings
170,000
Total equity
$
300,000
The firm intends to first declare a 5 percent stock dividend and
then pay a 10-cent cash dividend (which also causes a reduction of
retained earnings).
Show the capital section of the balance sheet after the...
The Western Pipe Company has the following capital section in its balance sheet. Its stock is...
The Western Pipe Company has the following capital section in
its balance sheet. Its stock is currently selling for $5 per
share.
Common stock (65,000 shares at $1 par)
$
65,000
Capital in excess of par
65,000
Retained earnings
170,000
Total equity
$
300,000
The firm intends to first declare a 5 percent stock dividend and
then pay a 10-cent cash dividend (which also causes a reduction of
retained earnings).
Show the capital section of the balance sheet after the...
The Western Pipe Company has the following capital section in its balance sheet. Its stock is...
The Western Pipe Company has the following capital section in
its balance sheet. Its stock is currently selling for $4 per
share.
Common stock (65,000 shares at $2 par)
$
130,000
Capital in excess of par
130,000
Retained earnings
250,000
Total equity
$
510,000
The firm intends to first declare a 10 percent stock dividend
and then pay a 15-cent cash dividend (which also causes a reduction
of retained earnings).
Show the capital section of the balance sheet after the...
Restex has a debt-equity ratio of 0.76, an equity cost of capital of 18 %, and a debt cost of capital of 9 %.
Restex has a debt-equity ratio of 0.76, an equity cost of capital of 18 %, and a debt cost of capital of 9 %.
Restex's corporate tax rate is 30%, and its market capitalization is $ 199 million.
a. If? Restex's free cash flow is expected to be $5 million one year from now and will grow at a constant? rate, what expected future growth rate is consistent with?Restex's current market? value?
b. Estimate the value of Restex's interest tax...
The firm is generating its proforma balance sheet for 2016. For the year 2015, sales were...
The firm is generating its proforma balance sheet for 2016. For
the year 2015, sales were $4 million. Sales are expected to be $5
million in 2016. The company expects its net profit margin for 2016
to equal 5%. In each of the past several years, the company has
been paying $50,000 in dividends to its stockholders. The company
wants to increase dividends to $80,000 in 2016. The 2015 balance
sheet for the company is below. Assume that Cash, Accounts...
A company has the following balance sheet. What is its net operating working capital? Cash $...
A company has the following balance sheet.
What is its net operating working capital?
Cash $ 10 Accounts payable $ 20
Short-term investments 20 Accruals 30
Accounts receivable 30 Notes payable 20
Inventory 40 Current liabilities 70
Current assets 100 Long-term debt 30
Net fixed assets 80 Common equity 10
Retained earnings 70
Total assets $180 Total liab. & equity $180
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- #Python 5. Write function called evaluate() that evaluates the following Python expressions or assignments as specified:...
- Suggest journal, research paper link reference. i need this as reference for writing a research with...
- Cryptography is used heavily in internet communications. True or false? Explain
- Suppose Rialto is the only movie cinema in a small college town, so it is essentially...
- With VMI, members of the supply chain share planning, demand, forecasting, and inventory information.
- Large lots are desirable in supply chain coordination despite increasing holding costs.
- ***Convert the C++ to Python*** #include <iostream> using std::cout; using std::cin; using std::endl; int charClass; char...
ADVERTISEMENT