Question

Question 1 Your company’s bonds have a 10% annual yield, 8% annual coupon rate and 20...

Question 1

Your company’s bonds have a 10% annual yield, 8% annual coupon rate and 20 years to

maturity. There are 5000 bonds outstanding. The price of preferred stock is $30 per share and

there are 100,000 shares outstanding. Retained Earnings are 10,000,000 $.

a) Compute the price of each bond

b) Compute the total market value of debt outstanding

c) Compute the total market value of preferred stock

d) Compute the weights of each source of financing

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a). To find the bond's price, we need to put the following values in the financial calculator:

INPUT 20 10 8%*1,000=80 1,000
TVM N I/Y PV PMT FV
OUTPUT -829.73

So, Bond' Price = $829.73

b). Market Value of Debt = $829.73 x 5,000 = $4,148,643.63

c). Market Value of Preferred Stock = $30 x 100,000 = $3,000,000

d). Total Market Value of the Company = Market Value of Debt + Market Value of Preferred Stock + Retained Earnings

= $4,148,643.63 + $3,000,000 + $10,000,000 = $17,148,643.63

wD = $4,148,643.63 / $17,148,643.63 = 24.19%

wP = $3,000,000 / $17,148,643.63 = 17.50%

wRE = $10,000,000 / $17,148,643.63 = 58.31%

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Q1. Company Bonds have a 10% annual yield, 8% annual coupon rate and 20 years to...
Q1. Company Bonds have a 10% annual yield, 8% annual coupon rate and 20 years to maturity. There are 5000 bonds outstanding. The price of preferred stock is $30 per share and there are 100,000 shares outstanding. Retained Earnings are 10,000,000 $. Compute the price of each bond Compute the total market value of debt outstanding Compute the total market value of preferred stock Compute the weights of each source of financing
Your firm has 500,000 shares of common stock outstanding and 100,000 bonds outstanding. The firm has...
Your firm has 500,000 shares of common stock outstanding and 100,000 bonds outstanding. The firm has a required rate of return of 14%, the next annual dividend is SS and dividends are expected to grow at 8%. The bonds mature in 15 years, pay annual coupons with a 5% coupon rate, have a face value of $1000, and a yield to maturity of 7%. a) Compute the price per share based on the dividend model b) Compute the bond price...
A firm has a bonds with 10 years to maturity, and a coupon rate of 8%...
A firm has a bonds with 10 years to maturity, and a coupon rate of 8% (paid semi?annually). The bond currently sells for $932. The firm has a beta of 1.2. The stock price is $20/share. 3?month treasury bills yield 5%. The firm has outstanding, $10 million in debt at face value and there 1 million shares of common stock outstanding. Assume that the market risk premium is 5% and the tax rate is 35%. Calculate the WACC.
your firm has outstanding bonds with semi annual coupon payments and a face value of $1000....
your firm has outstanding bonds with semi annual coupon payments and a face value of $1000. the price today is $1075, the yield yo maturity is 8% and the bonds mature in 15 years. A) compute the annual coupon rate B) compute the capital gains yield C) is the bond a premium or discount? why? D) if the bond price goes up, what will happen to the coupon rate?
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20...
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20 years. Compute the current price of the bonds if the present yield to maturity is 7% 2.    Exodus Company has $1,000 par value bonds outstanding at 6% interest. The bonds will mature in 15 years. Compute the current price of the bonds if the current interest rate is 4%. 3.     The preferred stock of Ultra Corporation pays an annual dividend of $7.00. It has a required...
If the $1,000 face value, 8% annual coupon bonds with 15 years remaining to maturity and...
If the $1,000 face value, 8% annual coupon bonds with 15 years remaining to maturity and a current market price of $1,150. $100 par value preferred stock that pays an 11% annual dividend and has a current market price of $92.Common stock with a current market price of $50/share. Investors expect the next annual dividend to be $4.00 and to grow after that at a constant rate of 7% per year into the foreseeable future. If new securities today: New...
The semi-annual bonds of Delta Company have a coupon rate of 6%, a Yield to Maturity...
The semi-annual bonds of Delta Company have a coupon rate of 6%, a Yield to Maturity of 8%, a par value of $1,000, and 20-years to maturity. a. Calculate the price of a Delta Company bond today. b. What will be the price of a Delta Company bond in 1 year if the YTM decreases to 7%?
ABC's current book value capital structure is: Bonds $40 million (Number of bonds outstanding= 40,000) (Coupon...
ABC's current book value capital structure is: Bonds $40 million (Number of bonds outstanding= 40,000) (Coupon rate= 10% per annum) (Coupon payments annual, the face value= $1,000) (Remaining maturity= 16 years) Common Stock $50 million (Number of shares outstanding= 2million) Retained earnings $10 million The current yield to maturity of the firm's bonds is 7%. The current dividends per share= $2.5 and the growth rate of the dividends stream is 4% per annum and into indefinite future. The current required...
Company B had issued 10-year bonds a year ago at the coupon rate 4%. The bond...
Company B had issued 10-year bonds a year ago at the coupon rate 4%. The bond makes annual payments. The yield to maturity (YTM) of these bonds is 5%. The face value of the bond is $1000. Calculate the current bond price. Company B has a second debt issue on the market, a zero coupon bond with 9.6 years left to maturity. The yield to maturity (YTM) of these bonds is 8 %. The face value of the bond is...
a) Johnson Motors’ bonds have 10 years remaining to maturity. Coupon interest is paid annually, the...
a) Johnson Motors’ bonds have 10 years remaining to maturity. Coupon interest is paid annually, the bonds have a $1,000 par value, and the coupon rate is 7 percent. The bonds have a yield to maturity of 8 percent. What is the current market price of these bonds? b) BSW Corporation has a bond issue outstanding with an annual coupon rate of 7 percent paid semiannually and four years remaining until maturity. The par value of the bond is $1,000....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT