Question

In: Finance

The firm currently has one issue of bonds outstanding. The bonds have a par value of...

The firm currently has one issue of bonds outstanding. The bonds have a par value of $1,000 per​ bond, carry a coupon rate of 8 percent, have 14 years to​ maturity, and are selling for ​$1,070.​Nealon's common stock has a current market price of $ 36 and the firm paid a $2.60 dividend last year that is expected to increase at an annual rate of 6 percent for the foreseeable future.

A) What is the weighted average cost of capital for​ Nealon's investment using the weights reflected in the actual financing mix​ (that is,​$20 million in retained earnings and ​$60 million in​bonds)?

B) Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 30 percent of the ​$80 million in new​ capital, or ​$24 ​million, using ​$20 million in retained earnings and raising $36 million through a new equity offering.

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

The firm currently has one issue of bonds outstanding. The bonds have a par value of...
The firm currently has one issue of bonds outstanding. The bonds have a par value of ​$1 comma 000 per​ bond, carry a coupon rate of 8 ​percent, have 14 years to​ maturity, and are selling for ​$1, 070. ​Nealon's common stock has a current market price of $ 36​, and the firm paid a ​$2.60 dividend last year that is expected to increase at an annual rate of 6 percent for the foreseeable future. What is the cost of...
the company has an outstanding issue of bonds with a par value of $1,000 and paying...
the company has an outstanding issue of bonds with a par value of $1,000 and paying a 3.80 percent p.a. coupon rate with semi‑annual payments. The bonds were issued 30 years ago and have 15 years to maturity. What should be the current price per bond, assuming a 4.28 percent p.a. yield on comparable securities? please show all calculations on excel
(a) Trump Limited has an outstanding issue of convertible bonds with $1,000 par value. These bonds...
(a) Trump Limited has an outstanding issue of convertible bonds with $1,000 par value. These bonds are convertible into 50 shares of Ali’s common stock. The convertible bonds have a 10% coupon with 10-year maturity. The yield-to-maturity for a straight bond of similar risk is 8%. i. Calculate the straight bond value of the convertible bond. ii. What is the conversion value of the convertible bond when the market price of Trump’s common stock is $30 per share? iii. If...
A company has an issue of convertible bonds with a $1,000 par value. The bonds have...
A company has an issue of convertible bonds with a $1,000 par value. The bonds have a 10% coupon rate, have a 10-year maturity, and are convertible into 100 shared of common stock. The yield to maturity on bonds of similar risk is 11% and the market price of the firm's common stock is currently $9.00. Based on this information: a) What is the conversation value of this bond if it is selling at $970? b) What is it's pure...
Question 1) Complex Systems has an outstanding issue of $1000 par value bonds with a 11%...
Question 1) Complex Systems has an outstanding issue of $1000 par value bonds with a 11% coupon interest rate. The issue pays interest annually and has 16 years remaining to its maturity date. a) If the bonds of similar risk are currently earning a rate of return of 9%, how much should Complex Systems bond sell for today? b) Describe the two possible reasons why the rate on similar-risk bonds is below the coupon interest rate on the Complex System...
The white sands company has $1,000-par-value bonds outstanding with the following characteristics: currently selling at par;...
The white sands company has $1,000-par-value bonds outstanding with the following characteristics: currently selling at par; 5 years until final maturity; and a 9 percent coupon rate (with interest paid semiannually). Interestingly, American Express has a very similar bond issue outstanding. In fact, every bond feature is the same as for the white sands bonds, except that American express bonds mature in exactly 10 year. Now, assume that the market’s nominal annual required rate of return for both bond issues...
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?
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 $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
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?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT