Acme Chemical, Inc. is a major manufacturer of chemical products for the agriculturalndustry, including pesticides, herbicides and other compounds. Due to a number of law suitselated to toxic wastes, Acme Chemical has recently experienced a market re-evaluation of itscommon stock. The firm also has a bond issue outstanding with 10 years to maturity and anannual coupon rate of 5 percent, with interest paid semi annually. The required nominal marketannual interest rate on this bond has now risen to 10 percent due to the high risk level associatedvith this firm. The bonds have a par or face value of $1,000.1. Label each of the variables that you would use to determine the value of this bond in themarket today:N (time periods until maturity)PMT (periodic interest payment)I per (periodic market interest rate)EV (future value to be received when the bond matures) =2. Based on the variables that you have identified in Question #1, what is the market value.today (the present value or PV) of one of Acme Chemical's bonds? aLabel each of the variables that you would use to determine the new value of this bondin the market:N (time periods until maturity)PMT (periodic interest payment)I per (periodic market interest rate)EV (future value to be received when the bond's mature) =b Based on the variables that you have identified in Question #3.a., what is the new marketvalue (the present value or PV) of one of Acme Chemical's bonds, following their victoryin appeals court?1. Why do you suppose that the market value of Acme Chemical's bonds has risen following thefirm's victory in appeals court?

Bonds Bonds are referred to as fixed-income instruments which show a loan made by an investor to a…

Answered: Acme Chemical, Inc. is a major…

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

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Cross-Ocean Boats Ltd. is in the 30% tax bracket. It is interested in determining the minimumreturn that its stakeholders (investors) will accept. Since you have applied for an internshipwith them, they have assigned this task to you.To get started with your work, you compile some information as follows:1. Cross-Oceans has 3000, 6% semi-annual coupon bonds outstanding. These bonds willmature in 12 years and they sell for 80% of their par value as of now.2. The firm is also partly equity financed. It has 100,000 outstanding common shares and19,000 shares of preferred stock. The common shares command a market price of $55per share and the beta of Cross-Ocean stock is 1.20. Preference shares offer a 6% fixeddividend and sell for $110 per share.3. The risk-free rate is 4% and the market risk premium is 6% Armed with this information, compute:4. The overall minimum required return for Cross-Ocean’s stakeholders. Please show full workings (without the use of microsoft excel)
Nikul
To help finance a major expansion, a company sold a noncallable bond several years ago that now has 15 years to maturity. This bond has a 5% annual coupon, paid semiannually, it sells at a price of $985, and it has a par value of $1,000. If the company’s tax rate is 28%, what component cost of debt should be used in the WACC calculation?
Continental container corp. has decided to raise additional capital by issuing a $300,000 face-value of bonds with a coupon rate of 10%. in discussions with their investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of 10 warrants for each $1,000 bond sold. the value of the bonds without the warrants is considered to be $279,000, and the value of the warrants in the market is $10.3333 each. the bonds sold in the market at issuance and the company received $306,000 in cash. Required: Prepare the journal entry to record the issuance of the bonds and warrants.
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Your answer is correct. Cullumber, Inc., has a bond issue maturing in seven years that is paying a coupon rate of 7.5 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. If it can refinance at 6.0 percent, how much will Cullumber pay to buy back its current outstanding bonds? Assume face value is $1,000. (Round answer to 2 decimal places, e.g. 15.25.) Cullumber will pay +A $ 1084.72
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Question 95 Using Financial Statements for 2020, debt equity ratio for the year 2020 is 2.30.
Island Telephone Corporation issued a $240,000 face value bond on March 21, 1989, carrying a 9.25% coupon and 25 years to maturity. Global Financial Services purchased the bond on March 21, 1996, at which point the market rate was 8.25%, and sold it on September 21, 2008, for $307,186.03 when market rates were 4.9%. What yield did Global Financial Services realize on its investment? Number K

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