Question

In: Finance

The purpose of this calculation question is for you to compute the fair value of the...

The purpose of this calculation question is for you to compute the fair value of the financial liabilities of Hue Company.

Hue Company has only 1 financial liability. It is a non-callable publicly traded bond. Here are your facts to input into this question:

  • Maturity value of the bond = $260,000,000
  • Coupon Rate for the bond is 5.38% paid semi-annually.
  • Bond matures on the last day of the firm’s financial year.
  • Last Financial Year end – the yield to maturity was 4.80% based on periodic compounding (not EAR)
  • Last Financial Year end – bond had exactly 18 years to maturity
  • This Year Financial Year end – the yield to maturity demanded by the market is 4.30% (based on doubling the periodic rate)

Required: Compute the fair value of the bond to be reported on this year’s balance sheet. Round to the nearest dollar and do NOT include the dollar sign in your response.

Solutions

Expert Solution

The remaining period to maturiy is 18 years

coupon rate for the bond is 5.38%(10.76% annualy)

We use the market interest rate of this finanaical year end is 4.30%(8.60% annualy) for detemining present value of bond.

Present value of Bond.

calculation of present value $        260,000,000.00
Yeary Interest(10.76%) Present value factor Present value
1         27,976,000.00 0.921            25,760,589
2         27,976,000.00 0.848            23,720,616
3         27,976,000.00 0.781            21,842,188
4         27,976,000.00 0.719            20,112,512
5         27,976,000.00 0.662            18,519,809
6         27,976,000.00 0.610            17,053,231
7         27,976,000.00 0.561            15,702,791
8         27,976,000.00 0.517            14,459,292
9         27,976,000.00 0.476            13,314,265
10         27,976,000.00 0.438            12,259,912
11         27,976,000.00 0.404            11,289,054
12         27,976,000.00 0.372            10,395,077
13         27,976,000.00 0.342               9,571,894
14         27,976,000.00 0.315               8,813,899
15         27,976,000.00 0.290               8,115,929
16         27,976,000.00 0.267               7,473,231
17         27,976,000.00 0.246               6,881,428
18         27,976,000.00 0.226               6,336,490
18      260,000,000.00 0.226            58,889,314
Total          310,511,521

The present value of bond is 310,511,521.


Related Solutions

The purpose of this calculation question is for you to compute the fair value of the...
The purpose of this calculation question is for you to compute the fair value of the financial liabilities of XYZ Company. XYZ Company has only 1 financial liability. It is a non-callable publicly traded bond. Here are your facts to input into this question: Maturity value of the bond = $260,000,000 Coupon Rate for the bond is 5.38% paid semi-annually. Bond matures on the last day of the firm’s financial year. Last Financial Year end – the yield to maturity...
The purpose of this calculation question is for you to compute the fair value of the...
The purpose of this calculation question is for you to compute the fair value of the financial liabilities of XYZ Company. XYZ Company has only 1 financial liability. It is a non-callable publicly traded bond. Here are your facts to input into this question: Maturity value of the bond = $260,000,000 Coupon Rate for the bond is 5.38% paid semi-annually. Bond matures on the last day of the firm’s financial year. Last Financial Year end – the yield to maturity...
Compute the fair value of a chooser option which expires after n = 10n=10 periods. At...
Compute the fair value of a chooser option which expires after n = 10n=10 periods. At expiration the owner of the chooser gets to choose (at no cost) a European call option or a European put option. The call and put each have strike K = 100K=100 and they mature 5 periods later, i.e. at n = 15n=15 Instructions: Quiz Instructions: Option Pricing in the Multi-Period Binomial Questions 1-8 should be answered by building a 15-period binomial model whose parameters...
Describe fair value accounting and fair value measurement. Give examples of fair value accounting and measurement
Describe fair value accounting and fair value measurement. Give examples of fair value accounting and measurement
Determination of Implied Fair Value: Fair Value of assets including Goodwill $445 Million (Fair Value of...
Determination of Implied Fair Value: Fair Value of assets including Goodwill $445 Million (Fair Value of Assets excluding Goodwill) ($425 Million) =Implied Fair Value of Goodwill $25 Million Measurement of Impairment Loss: Book value of Goodwill $125 Million (Implied Fair Value of Goodwill) ($20 Million) =Impairment Loss $105 Million Journal Entry for Impairment Loss: Date Dec 31 Impairment loss on Goodwill Debit $105,000,000 Goodwill Credit $105,000,000 1.Based on the information above can early adoption of the FASB ASU 2017-4 standards...
This question is worth 10 marks in total. This is a written calculation question, and you...
This question is worth 10 marks in total. This is a written calculation question, and you should perform the necessary calculations/working on paper to later be scanned and uploaded. Start a new page for this question. For dollar amounts, give your answer to the nearest cent. For interest rates, give our answer as a percentage rounded to 2 decimal places. If any parts of the question use values from earlier parts, use the EXACT values from earlier parts. QUESTION START...
This question is worth 10 marks in total. This is a written calculation question, and you...
This question is worth 10 marks in total. This is a written calculation question, and you should perform the necessary calculations/working on paper to later be scanned and uploaded. Start a new page for this question. For dollar amounts, give your answer to the nearest cent. For interest rates, give our answer as a percentage rounded to 2 decimal places. If any parts of the question use values from earlier parts, use the EXACT values from earlier parts. QUESTION START...
This question is worth 10 marks in total. This is a written calculation question, and you...
This question is worth 10 marks in total. This is a written calculation question, and you should perform the necessary calculations/working on paper to later be scanned and uploaded. Start a new page for this question. For dollar amounts, give your answer to the nearest cent. For interest rates, give our answer as a percentage rounded to 2 decimal places. If any parts of the question use values from earlier parts, use the EXACT values from earlier parts. QUESTION START...
Present Value & Future Value calculation
Calculate the required values and select the correct option.
QUESTION 5 In calculation of time value of money, the interest rate has a _________ relationship...
QUESTION 5 In calculation of time value of money, the interest rate has a _________ relationship to the present value and _________ relationship to the future value of an investment.              positive; negative             negative; negative            negative; positive           positive; positive             None of the options specified here 10 points   QUESTION 6 The present value of a single future sum:              is generally larger than the future sum.             depends upon the number of discount periods.            increases as...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT