ABC Corporation was able to issue 20-year P10,000,000-face value bonds with interest of 8% per annum, due every quarter. It incurred issuance cost of P350,000 but it got net proceeds of P10,200,000 from the issuance. The annual effective cost of these bonds is closest to

ABC Corporation was able to issue 20-year P10,000,000-face value bonds with interest of 8% per annum, due every quarter. It incurred issuance cost of P350,000 but it got net proceeds of P10,200,000 from the issuance. The annual effective cost of these bonds is closest to

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: How low does the market interest rate need to drop to justify refunding with a new bond issue?

A: Step 1 NPV is employed in capital budgeting and investment going to analyze the gain of a projected…

Q: Brown Industries can sell 15 years, $1000 par value bonds paying annual interest at 12% coupon rate.…

A: Formulas:

Q: Oberon, Inc. has a $20 million (face value) 10-year bond issue selling for 97 percent of par that…

A: The before tax cost of debt is calculated as bond YTM which can be estimated from the RATE function…

Q: Oriole Corp. issues bonds with a face value of $325 million that mature in 14 years. The bonds carry…

A: A bond is a kind of debt security issued by the government and private companies to the public for…

Q: Beluga Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 10% when the…

A: Bonds are a form of liability or loan taken by the business. Business needs to make regular interest…

Q: Kiss Greetings planned to raise $500,000 by issuing bonds. The bond certificates were printed…

A: In the given case,The bond certificates were printed bearing a stated interest rate of 6%, which was…

Q: l Food Supplies Corporation sold an issue of 10-year bonds. The bonds sold at a $980 price each.…

A: Bond is that debt instrument which is used by the organization to finance its long term fund needs,…

Q: Severalyears ago, the ABC Company sold a $1,000 par value bond that now has 15 yearsto maturity and…

A: The after-tax cost of debt is the interest paid on debt less any income tax savings due to…

Q: QUESTIONS QUESTION 1. of 600,000t. The bonds were sold at a 12% discount and floatation costs…

A: Net Proceeds of the new issue = 600,000×1-12%+5%600,000×1-17%498,000 Equating the above net proceeds…

Q: Holiday Brands issued $31 million of 10%, 30-year bonds for $28.5 million. What is the amount of…

A: Bonds Bonds are a kind of interest bearing notes payable, usually issued by companies, universities…

Q: Years ago, Bustle Company sold a $1,000 par value bond that now has 25 years to maturity and an…

A: A bond is a kind of debt security issued by the government and private companies to the public for…

Q: At the present time, Water and Power Company (WPC) has 20-year noncallable bonds with a face value…

A: Yield to maturity (YTM) is also known as yield till maturity, and it refers to the return of the…

Q: A company has $200,000 of 10-year bonds payable outstanding. These bonds had a discount of $24,000…

A: Bonds: It is a debt instrument issued by the government or the organisation to the holders.

Q: rporation sold an issue of 20 year bonds, having a total face value of P10 Million pesos for P9.5…

A: Bond carry the annual interest payments and redemption value on the maturity of bond. There are…

Q: Several years ago, the ABC Company sold a $1,000 par value bond that now has 20 years to maturity…

Q: Oberon, Inc. has a $25 million (face value) 10-year bond issue selling for 96 percent of par that…

A: The before tax cost of debt is calculated as bond YTM which can be estimated from the RATE function…

Q: Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years…

A: Here,Par Value of Bond $ 1,000.00Annual Time Period20Coupon Rate in %7%Current Price of Bond $…

Q: KatyDid Clothes has a $150 million (face value) 30-year bond issue selling for 104 percent of par…

A: Cost of debt is the yield to maturity of the bond, this is can be determined as the rate of return…

Q: A firm has issued $100M in a 6% semi-annual bond which has 5 years remaining and is trading in the…

A: Face value of bond= $100Annual coupon rate= 6%Semi-Annual coupon = 6%*100/2= 3Years to maturity =…

Q: Prepare the relevant entries for the whole tenure.

A: Investment in the debt instrument Debt amortized cost- An amortized bond is one in which the face…

Q: what is the carrying value of the bonds after one year?

A: Carrying Value of Bonds It is the total of bond's face value and any un-amortized premiums or…

Q: Company XYZ has a liability of $100 million due in 5 years. The company’s only asset is $70 million…

A: Bond Duration measures how much bond prices will change if interest rates change. Bonds which have…

Q: The company issues 10.0%, 10-year bonds with a total face amount of $1,000,000. The market interest…

A: A bond is an instrument offered in a debt market that pays the investor a regular set of interest…

Q: Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now has 20 years…

A: The objective of the question is to calculate the after-tax cost of debt for Jakob Company, which…

Q: Several years ago, the Jakobe Company issued a $1,000 par value, non-callable bond that now has 20…

A: Compound = semiannually = 2Face value = fv = $1000Time = nper = 20 * 2 = 40 Coupon rate = 1/2 =…

Q: Several years ago, the ABC Company sold a $1,000 par value bond that now has 15 years to maturity…

A: The cost of raising the funds through borrowing or the financing cost is termed as the required rate…

Q: Several years ago the Jakobe Company issued a $1,000 par value, non-callable bond that now has 20…

A: In the given question we need to compute the after-tax cost of debt for use in the WACC calculation.…

Q: The company has a P1,000 par value bond outstanding with 25 years to maturity. The bond carries an…

A: Annual interest payment = P88 Maturity value = P1,000 Tax rate = 0.30 Current price = P925 Maturity…

Q: Omni Consumer Products Company (OCP) can borrow funds at an interest rate of 9.70% for a period of…

A: Cost of debt refers to an expense that is being charged on the debt amount being borrowed by the…

Q: Assume that Riverbed Inc. invests in a bond for $120,000. The bond was purchased at par and is…

A: The amount a bank anticipates losing while extending credit to its customers on average over a…

Q: Bayside Inc. sells $5,000,000 of five-year, 10% bonds at the start of the year. The bonds pay…

A: Value of Bonds=$5,000,000 Coupon rate=10% Years to maturity=5 years Effective yield=9% Bond…

Q: ABC Co. can issue P1,000 par value bond that pays P100 per year in interest at a price of P980. The…

A: Bond price implies for the consideration paid by an investor for acquiring bond. In provided case,…

Q: At the present time, Water and Power Company (WPC) has 5-year noncallable bonds with a face value of…

A: Variables in the question:Face value=$1000Current market price=$1050.76Coupon rate=10%N=5 yearsTax…

Q: XYZ Company has bonds outstanding with 7 years left before maturity. The bonds are currently selling…

A: The effective interest rate that a corporation pays on its obligations, such as bonds and loans, is…

Q: Jiminiys cricket farm issued a 30 year.8 percent semiannual bond 3 years ago.the bond currently…

A: Pretax cost of debt is YTM of the bond

Q: a. Calculate the present value of total outflows. (Do not round intermediate calculations and round…

A: Information Provided: Bond Obligation = $24 million Issued rate = 13% Int rates on similar bonds =…

Q: A Ltd. is considering a Project having a life of 5 year with following cash flows Project I 30,000…

A: IRR is the rate of return a project generates through its lifetime expressed in annual terms. It is…

Q: A Corporation sold an issue of 15-year bonds, having a total face value of ₱12,000,000 for…

A: A sinking fund is a means of repayment of funds raised through a bond issue by periodic payment to a…

Q: Universal Manufactoring plans to issue long-term bonds to raise funds to support future expansion.…

A: The coupon rate on a bond is the annual interest rate that the issuer promises to pay to the…

Q: Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14%…

A: Step 1:

Q: Acme Organic Potato Chip Corp. sold an issue of 12-year $1,000 par bonds for general corporation…

A: The price of the bond is the value that investors are willing to pay for a bond.

Question

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Concept

VIEW

Answer

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

Palmer Company has $5,000,000 of 15-year maturity bonds outstanding. Each bond has a maturity value of $1,000, an annual coupon of 12.0%. The bonds can be called at any time with a premium of $50 per bond. If the bonds are called, the company must pay flotation costs of $10 per new refunding bond. Ignore tax considerations-assume that the firm's tax rate is zero. The company's decision of whether to call the bonds depends critically on the current interest rate on newly issued bonds. What is the breakeven interest rate, the rate below which it would be profitable to call in the bonds? A) 9.57% B) 10.07% C) 10.60% D) 11.16% E) 11.72%
Shanken NV issued a 20-year, 12 percent semiannual bond 5 years ago. The bond currently sells for 129 percent of its face value. The company’s tax rate is 35 percent. Assume the face value of the debt is €1,000. What is the after-tax cost of debt? a) 3.844% b) 5.057% c) 8.54% d) 5.55%
A corporation sold an issue of 20-year bonds, having a total face value of Php 10,000,000, for Php 9,500,000, The bonds bear interest at 16%, payable semiannually. The company wishes to establish a sinking fund for retiring the bond issue and will make semiannual deposits that will earn 12% compounded semiannually. Compute the annual cost for interest and redemption of these bonds.
The Wagner Corporation has a $21 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 16 percent, the interest rates on similar issues have declined to 13.3 percent. The bonds were originally issued for 20 years and have 16 years remaining. The new issue would be for 16 years. There is a 10 percent call premium on the old issue. The underwriting cost on the new $21 million issue is $670,000, and the underwriting cost on the old issue was $520,000. The company is in a 40 percent tax bracket, and it will allow an overlap period of one month (1/12 of the year). Treasury bills currently yield 5 percent. (Do not round intermediate calculations. Enter the answers in whole dollars, not in millions. Round the final answers to nearest whole dollar.) a. Calculate the present value of total outflows. Total outflows $ b. Calculate the present value of total inflows. Total inflows $ c. Calculate the net present value. Net present value $…
Wildhorse Company is issuing long-term bonds to raise money for a planned acquisition. The face value of the bonds is $9551000. The stated interest rate is 10% payable seminannally for the 10 year term. The current market rate for similar bonds is 8%. What amount of proceeds is closet to the amount that Wildhorse will receive from this bond issue?
Lenovo issued 30-year, 7.7 percent semiannual bonds 6 years ago. The bonds sell presently at 101 percent of face value. What is the company's after-tax cost of debt if the tax rate is 35 percent?
A pharmaceutical company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. The company has also issued 4,000 new bond issues with an 8 percent coupon, paid semi-annually, and matures in 10 years. The bonds were sold at par, and incurred floatation costof 2 percent per issue. 1. Calculate the cost of debt and the market value of debt.
The Wagner Corporation has a $29 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 16 percent, the interest rates on similar issues have declined to 13.3 percent. The bonds were originally issued for 25 years and have 21 years remaining. The new issue would be for 21 years. There is a 8 percent call premium on the old issue. The underwriting cost on the new $29 million issue is $640,000, and the underwriting cost on the old issue was $490,000. The company is in a 40 percent tax bracket, and it will allow an overlap period of one month (1/12 of the year). Treasury bills currently yield 5 percent. (Do not round intermediate calculations. Enter the answers in whole dollars, not in millions. Round the final answers to nearest whole dollar.) a Calculate the present value of total outflows. Total outflows $ 3450000 b. Calculate the present value of total inflows. Total inflows $ 469800 c. Calculate the net present value. Net…
The Mossman Castle Hill has a $19 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.6 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 10 percent call premium on the old issue. The underwriting cost on the new $18,000,000 issue is $530,000, and the underwriting cost on the old issue was $380,000. The company is in a 35 percent tax bracket, and it will use an 8 percent discount rate (rounded after-tax cost of debt) to analyse the refunding decision. Should the old issue be refunded with new debt? (Follow the steps from the textbook example!) Skip Start Solving

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS