Question

Guv-Mint Bales needs to raise $200,000,000 (200 Million) in new debt to finance its survival. The...

Guv-Mint Bales needs to raise $200,000,000 (200 Million) in new debt to finance its survival. The debt will be priced at a yield to maturity of 8.64%. These will be 10 year bonds with a coupon rate set at 7% to be paid annually. The investment bankers are charging a flotation cost of 3.24%. Bonds will have a face value of $1,000 per bond.  Compute the number of bonds to be issued and round to the second decimal place.

Homework Answers

Answer #1

r = yeild to maturity = 8.64%

n = 10 years

C = Coupon payment = $1,000 * 7% = $70

Face value = $1,000

Value of bond today = [C * [1 - (1+r)^-n] / r] + [Face value / (1+r)^n]

= [$70 * [1 - (1+8.64%)^-10] / 8.64%] + [$1,000 / (1+8.64%)^10]

= [$70 * 0.563381201 / 0.0864] + [$1,000 / 2.2903274]

= $456.443103 + $436.6188

= $893.061903

= $893.06

Amount to be raised = $200,000,000

Number of bonds to be issued = Amount to be raised / [Bonds Price * (1- Flotation cost)]

= $200,000,000 / [$893.06 * (1-3.24%)]

= $200,000,000 / $864.124856

= 231,448.036

Therefore, bonds to be issued is 231,448.04

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Guv-Mint Bales needs to raise $200,000,000 (200 Million) in new debt to finance its survival. The...
Guv-Mint Bales needs to raise $200,000,000 (200 Million) in new debt to finance its survival. The debt will be priced at a yield to maturity of 8.64%. These will be 10 year bonds with a coupon rate set at 7% to be paid annually. The investment bankers are charging a flotation cost of 3.24%. Bonds will have a face value of $1,000 per bond.  Compute the number of bonds to be issued and round to the second decimal place.
Guv-Mint Bales needs to raise $1,200,000,000 (1.2 Billion) in new debt to finance its survival. The...
Guv-Mint Bales needs to raise $1,200,000,000 (1.2 Billion) in new debt to finance its survival. The debt will be priced at a yield to maturity of 6.48%. These will be 30 year bonds with a coupon rate set at 5% to be paid annually. The investment bankers are charging a flotation cost of 2.50%. Bonds will have a face value of $1,000 per bond. Compute the number of bonds to be issued and round to the second decimal place.
Guv-Mint Bales needs to raise $2,200,000,000 (2.2 Billion) in new debt to finance its survival. The...
Guv-Mint Bales needs to raise $2,200,000,000 (2.2 Billion) in new debt to finance its survival. The debt will be priced at a yield to maturity of 4.68%. These will be 25 year bonds with a coupon rate set at 3% to be paid annually. The investment bankers are charging a flotation cost of 2.20%. Bonds will have a face value of $1,000 per bond. Compute the number of bonds to be issued and round to the second decimal place.
Calculating Costs of Issuing Debt Home Improvement, Inc. needs to raise $2.40 million to finance plant...
Calculating Costs of Issuing Debt Home Improvement, Inc. needs to raise $2.40 million to finance plant expansion. In discussions with its investment bank, Home Improvement learns that the bankers recommend a debt issue with a gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 10 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $2.40 million they need?
Renee’s Boutique, Inc., needs to raise $58.03 million to finance firm expansion. In discussions with its...
Renee’s Boutique, Inc., needs to raise $58.03 million to finance firm expansion. In discussions with its investment bank, Renee’s learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter’s spread of 5.0 percent of the gross price. 1)Calculate the net proceeds to Renee’s from the sale of the debt. 2) How many bonds will Renee’s Boutique need to sell in order to receive the $58.03 million it needs?
Smith Stationary Ltd needs to raise $500,000 to improve its manufacturing plant. It has decided to...
Smith Stationary Ltd needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 face value bond with a 8% annual coupon rate paid semi-annually and a 5-year maturity. The investors require 10% rate of return. a.Calculate the price of this bond. How many bonds need to be issued to receive the required amount of fund? b.What is the firm after-taxed cost of debt given the tax rate is 30%
Smith Stationary Ltd needs to raise $500,000 to improve its manufacturing plant. It has decided to...
Smith Stationary Ltd needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 face value bond with a 8% annual coupon rate paid semi-annually and a 5-year maturity. The investors require 10% rate of return. a.Calculate the price of this bond. How many bonds need to be issued to receive the required amount of fund? b.What is the firm after-taxed cost of debt given the tax rate is 30%
Renee’s Boutique, Inc., needs to raise $58.08 million to finance firm expansion. In discussions with its...
Renee’s Boutique, Inc., needs to raise $58.08 million to finance firm expansion. In discussions with its investment bank, Renee’s learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter’s spread of 4.5 percent of the gross price. Calculate the net proceeds to Renee’s from the sale of the debt. (Enter your answer in millions of dollars and round to 2 decimal places.)   Net proceeds to Renee’s $ m...
DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.08 million to finance plant expansion. In discussions...
DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.08 million to finance plant expansion. In discussions with its investment bank, DiPitro’s learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter’s spread of 4.5 percent of the gross proceeds. How many bonds will DiPitro’s Paint and Wallpaper need to sell in order to receive the $1.08 million it needs? (Do not round intermediate calculations and round your final answer...
Selling bonds.  Rawlings needs to raise $43,200,000 for its new manufacturing plant in Jamaica. Berkman Investment...
Selling bonds.  Rawlings needs to raise $43,200,000 for its new manufacturing plant in Jamaica. Berkman Investment Bank will sell the bond for a commission of 2.7%. The market yield is currently 7.9% on​ twenty-year zero-coupon bonds. If Rawlings wants to issue a​ zero-coupon bond, how many bonds will it need to sell to raise the $43,200,000​? Assume that the bond is semiannual and issued at a par value of $1,000.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT