The problem refers to the bonds of The Apollo Corporation, all of which have a call feature. The call feature allows Apollo to pay off bonds anytime after the first 15 years, but requires that bondholders be compensated with an extra year's interest at the coupon rate if such a payoff is exercised.

Apollo's Alpha bond was issued 10 years ago for 30 years with a face value of $1000. Interest rates were very high at the time, and the bond's coupon rate is 20%. The interest rate is now 12.5%. Assume bond coupons are paid semiannually.

1. At what price should an Alpha bond sell? Round the answer to the nearest cent.
2. At what price would it sell without the call feature? Round the answer to the nearest cent.

Suppose that you just joined the Kuala Lumpur office of the Standard Chartered Bank. On your first day on the job, you have been asked to value a European option on a stock. The stock is currently trading at 60.00 ringgits per share. The 4-month nominal risk-free ringgit interest rate is 6.5%. Your colleague, who was previously working in the stock, has estimated the weekly return volatility (i.e., the volatility based on weekly return) to be 3.1%.

(a)       Find the value of a 4-month European call option on the stock with strike or exercise price equal to 55 ringgits.

(b)       Find the value of a 8-month European call option on the stock with strike or exercise price equal to 55 ringgits.

Imagine that you are the CEO of Moet Hennessy Louis Vuitton SE (LVMH).  You have just received share price valuation estimates for a potential buyout target, Rimowa, from two of your top financial analysts. Both analysts used the discounted cash flow (DCF) model to estimate the share price resulting in a valuation of $50, by the first analyst and $60, by the second analyst.  

You made a buyout offer of $55 a share and Rimowa’s CEO rejected it.  The German luxury luggage brand Rimowa is crucial to LVHM’s strategic expansion into brands that have heritage and a unique position.  As the CEO of LVHM what would you do to meet LVHM’s strategic objectivewhile minimizing the costto acquire Rimowa?  Briefly defend your recommendation.

QUESTION ONE

Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for
R20. The abbreviated balance sheet before paying out the dividend is:

Equity:240 000 Bank/cash: 90 000
Debt:  160 000 Other Assets: 310 000
400 000 400 000

Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by:

1.1 Calculating the number of shares in issue
1.2 The dividends per share (for the first alternative, i.e. pay the dividend)   

1.3 Calculate:
1.3.1 The new share price
1.3.2 The EPS
1.3.3 The price-earnings ratio

Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra

dividend or a share repurchase. Current profits are R2,40 per share and the share sells for

R20. The abbreviated balance sheet before paying out the dividend is:

Equity 240 000 Bank/cash 90 000

Debt 160 000 Other Assets 310 000

400 000 400 000

Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by:

1.1 Calculating the number of shares in issue (4)

1.2 The dividends per share (for the first alternative, i.e. pay the dividend) (2)

1.3 Calculate:

1.3.1 The new share price (6)

1.3.2 The EPS (4)

1.3.3 The price-earnings ratio (4)

The problem refers to the bonds of The Apollo Corporation, all of which have a call feature. The call feature allows Apollo to pay off bonds anytime after the first 15 years, but requires that bondholders be compensated with an extra year's interest at the coupon rate if such a payoff is exercised.

Apollo's Alpha bond was issued 10 years ago for 30 years with a face value of $1000. Interest rates were very high at the time, and the bond's coupon rate is 20%. The interest rate is now 13.5%. Assume bond coupons are paid semiannually.

1. At what price should an Alpha bond sell? Round the answer to the nearest cent.
   $   
   
2. At what price would it sell without the call feature? Round the answer to the nearest cent.
   $   

Suppose that you are considering the purchase of an apartment building for $2 million.A bank is willing to loan you 85% of the purchase price with a 25 year loan with monthly payments and monthly compounding. If the bank charges you an annual interest rate of 10%. What will be your monthly payment for this loan. Show work

a.10119

b.10373

c.13626

d. 14539

e.15444

Suppose that you are considering the purchase of a house for 300,000. A bank is willing to loan you 75Z% of the purchase price with a 20 year loan with an annual interest rate of 12% with monthly payments and monthly compounding. What will your first 6 payments be for this loan?

a.14865

b.29729

c.31952

d.37030

e.37243

The problem refers to the bonds of The Apollo Corporation, all of which have a call feature. The call feature allows Apollo to pay off bonds anytime after the first 15 years, but requires that bondholders be compensated with an extra year's interest at the coupon rate if such a payoff is exercised.

Apollo's Alpha bond was issued 10 years ago for 30 years with a face value of $1000. Interest rates were very high at the time, and the bond's coupon rate is 20%. The interest rate is now 10%. Assume bond coupons are paid semiannually.

1. At what price should an Alpha bond sell? Round the answer to the nearest cent.
   $   
   
2. At what price would it sell without the call feature? Round the answer to the nearest cent.
   $   

Can you explain what numbers were used to calculate the price of the bond?

On June 1, 20x1, Jeff Co. issued $12,000,000 of 10% bonds to yield 12%. Interest is payable semiannually on May 31 and November 30. The bonds mature in 15 years. Jeff Co. is a calendar-year corporation.

       Required:

Determine the issue price of the bonds. Show computations.

Prepare an amortization table through the first two interest periods using the effective interest method.

Prepare the journal entries on

June 1, 20x1

November 30, 20x1

December 31, 20x1

May 31, 20x2

What would be the journal entry if all bonds are retired at 103 on May 1, 20x2 right after the second payment.

Operating cash flow​ (growing each​ year; MACRS). Miglietti Restaurants is looking at a project with the following forecasted​ sales: ​ first-year sales quantity of 31,000​ with an annual growth rate of 4.00​% over the next ten years. The sales price per unit will start at $42 and will grow at 2.50​% per year. The production costs are expected to be 55​% of the current​ year's sales price. The manufacturing equipment to aid this project will have a total cost​ (including installation) of $2,400,000. It will be depreciated using​ MACRS, and has a​ seven-year MACRS life classification. Fixed costs will be $320,000 per year. Miglietti Restaurants has a tax rate of 30​%.

What is the operating cash flow for this project over these ten​ years? Please show all 10