HP LD
docx
keyboard_arrow_up
School
University of Melbourne *
*We aren’t endorsed by this school
Course
FNCE30002
Subject
Finance
Date
Apr 3, 2024
Type
docx
Pages
3
Uploaded by KidJayMaster1079
HP
1. What is the amount of HP’s long-term debt at the end of fiscal year 2017?
- If we are considering the Net book value of long-term debt, then NBV = Current portion of LT debt + LT Debt = $6,747m + $96m = $6,843m from Note 11
2. What is the face value of HP’s long-term debt (including capital lease obligations)? On
average, did HP issue its long-term debt at par, discount or premium?
- Face value of long-term debt: $7,836m from Note 11
- Because face value of LT debt > NBV of LT Debt, HP issued its LT debt at a discount on average
3. What is HP’s interest expense for 2017?
- $309m from Note 7
4. How much cash did HP pay for interest in 2017?
- Interest expense payment in cash: $322m from the Cash Flow Statement
5. What is the non-cash component on HP’s interest expense in 2017? Is it amortization
or discount or amortization of premium? Suppose that cash paid for interest in 2017
includes 22 million related to interest due in 2016.
- Non-cash component on interest expense in 2017, taking into account the $22m paid for interest in 2016 is: $309m – ($322m - $22m) = $9m
- That’s amortization of discount because the debt was issued at a discount on average from question #2.
6. For each of the following bond issues, determine the face value, the coupon rate, the
net book value as of October 2017, and whether the bond was issued at a discount,
premium, or at par. Assume that for these notes no additional debt was retired or
issued during fiscal year 2017.
7) Answer the following questions pertaining to the US Dollar Global Notes due June
2021:
a. What is the interest expense HP recognized pertaining to this bond?
- Interest expense on this bond = coupon payment + amortization of bond discount = 4.3%*1,250m + ($1,249m - $1,248m) = $54.75m
b. What is the historical interest rate for the bond?
- The historical interest rate is: $54.75m / $1,248m * 100% = 4.38%
8) Suppose that HP had a zero-coupon bond and made the following disclosure about it:
2017 2016
$500 m zero-coupon bond due in 2028 356 345
Answer the following questions pertaining to US Dollar Zero Coupon bond due in 2028:
a. What is the interest expense HP recognized pertaining to this bond?
- Because this is a zero-coupon bond, interest expense is just the amortization of bond discount measured by the change in NBV of the bond between 2017 and 2016: $356m - $345m = $11m
b. What is the historical interest rate for the bond?
-The historical interest rate is: $11m / $345m * 100% = 3.188%
9) Footnote 9 of HP’s 2017 10K contains the following information:
“HP estimates the fair value of its debt primarily using an expected present value technique,
which is based on observable market inputs using interest rates currently available to
companies of similar credit standing for similar terms and remaining maturities, and
considering its own credit risk. [...] The estimated fair value of HP’s short- and long-term
debt was $8.1 billion at October 31, 2017 compared to its carrying amount of $7.8 billion at
that date.”
Using the above information, answer the following questions:
a. Is the estimated value of debt greater than, smaller than or the same as the NBV?
What explains the difference? How does GAAP reflect this?
- Estimated value of debt is larger than the NBV of debt. - The difference might be due to the fact that the fair value takes into account HP's credit risk and
is based on observable market inputs such as interest rates offered to businesses with comparable
credit standing for comparable terms and remaining maturities. In contrast, the carrying amount is usually determined historical interest rate and might not accurately represent the state of the market today.
- GAAP ignores the fluctuation in interest rates.
b. Suppose HP repurchased all of its debt. What would be the effect on HP’s net
income?
- Net income would be lowered by: $8.1bn - $7.8bn = $0.3bn because the market values the firm’s debt to be higher than its NBV => repurchasing debt means buying the $0.3bn difference, thus net income goes down by $0.3bn
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Related Questions
1. What is AT&T’s current ratio for 2019? 2018? Did it increase or decrease? What does that tell you about AT&T’s ability to pay its short term debts?
2. What was AT&T’s Profit Margin Ratio for 2019? 2018? Did it increase or decrease? Why would AT&T’s investors want to know this?
3. What was AT&T’s Debt Ratio for 2019? 2018? Did it increase or decrease? Why would AT&T’s lenders want to know this?
arrow_forward
Which figure in this worksheet is the Present Value of the company in 2014?
* *****I think it is
(13,617.88)
arrow_forward
May I ask for an explanation and solution to the question for a better understanding. Thank you!
11. What is the amount of Sculler's working capital at December 31, 2021?
a. P41,000
b. P45,000
c. P50,000
d. P91,000
arrow_forward
Please with solutions~
arrow_forward
1.) What is Target’s current ratio for 2020? 2019? Did it increase or decrease? What does that tell you about Target’s ability to pay its short term debts?
arrow_forward
Calculate New Chip’s Coverage ratios for 2022 using:
a-Earnings before Interest and Tax (EBIT) ÷ Interest Expense (x)
b- Earnings before Interest, Lease Expense and Tax ÷ Fixed Charges (Interest + Lease Expense) (x)
Given New Chip’s Common Equity of $128 million at 12/31/22 and $116 million at 12/31/21, what was New Corp’s ROAE for 2022? (%)
arrow_forward
Want answer with calculation
arrow_forward
D6)
Finance
Average rate of return or yield on 180-day Government of Canada treasury bills sold on June 18, 2013 was 1.04%. The client sold the $50 000 T-bill after 39 days. What rate of return (per annum) did the client realize while holding the T-bill, if the short term interest for this maturity had risen to 1.13% by the date of sale?
arrow_forward
Need answer the question
arrow_forward
Answer please do it asap
arrow_forward
These are the three long term solvency for Cisco Inc.
Based on these numbers how well is the comany doing? How are the level of debt financing?
arrow_forward
Hi, how do you derive to this formula? please enlighten, thankyou
arrow_forward
Please give answer for this question
arrow_forward
Suppose a firm has the following information: Accounts payable =$1 million; notes payable = $1.1 million; short-term debt =$1.4 million; accruals = $500,000; and long-term bonds = $3 million.What is the amount arising from operating current liabilities?($1.5 million)
arrow_forward
What is the weighted average cost of debt for SNA using the book value weights and using the market value weights?
Book Value of Debt, i.e asset value of the debt in the company's financial books of accounts
Book value of the debt = Long term Debt + Notes Payable + Current portion of the long term debt
= $1182,000,000+ $269,000,000+ $223,000,000
=$1674,000,000
So then what about the market value? Also where the values $1182,000,000+ $269,000,000+ $223,000,000to calculate
the Book value of the debt is coming from?
arrow_forward
Your Company borrowed $50,000 on October 1, 2022. The loan was for 12-months and the
interest rate was 6%. Both interest and principal are payable at maturity. How is repaying
the $50,000 in 2023 best classified?
Asset exchange
O Asset source
O Claims exchange
O Asset use
arrow_forward
I want the correct answer accounting
arrow_forward
d) The following data is extracted from ABC Bank financial statements for the financial year ended 31
December 2021, equity $600 million, interest expense $190 million, provision for loan loss (P) $28
million, noninterest income $25 million, noninterest expense $45 million and a tax rate is 33%.
Calculate the minimum total interest income required to give a return on equity (ROE) of 14%.
Please show each step of your calculation.
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you

Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning

Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Related Questions
- 1. What is AT&T’s current ratio for 2019? 2018? Did it increase or decrease? What does that tell you about AT&T’s ability to pay its short term debts? 2. What was AT&T’s Profit Margin Ratio for 2019? 2018? Did it increase or decrease? Why would AT&T’s investors want to know this? 3. What was AT&T’s Debt Ratio for 2019? 2018? Did it increase or decrease? Why would AT&T’s lenders want to know this?arrow_forwardWhich figure in this worksheet is the Present Value of the company in 2014? * *****I think it is (13,617.88)arrow_forwardMay I ask for an explanation and solution to the question for a better understanding. Thank you! 11. What is the amount of Sculler's working capital at December 31, 2021? a. P41,000 b. P45,000 c. P50,000 d. P91,000arrow_forward
- Please with solutions~arrow_forward1.) What is Target’s current ratio for 2020? 2019? Did it increase or decrease? What does that tell you about Target’s ability to pay its short term debts?arrow_forwardCalculate New Chip’s Coverage ratios for 2022 using: a-Earnings before Interest and Tax (EBIT) ÷ Interest Expense (x) b- Earnings before Interest, Lease Expense and Tax ÷ Fixed Charges (Interest + Lease Expense) (x) Given New Chip’s Common Equity of $128 million at 12/31/22 and $116 million at 12/31/21, what was New Corp’s ROAE for 2022? (%)arrow_forward
- Want answer with calculationarrow_forwardD6) Finance Average rate of return or yield on 180-day Government of Canada treasury bills sold on June 18, 2013 was 1.04%. The client sold the $50 000 T-bill after 39 days. What rate of return (per annum) did the client realize while holding the T-bill, if the short term interest for this maturity had risen to 1.13% by the date of sale?arrow_forwardNeed answer the questionarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning

Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning

Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning