Buckeye Industries has a bond issue with a face value of $1,000 that is coming due inone year. The value of the company's assets is currently $1,230. The CEO believesthat the assets in the company will be worth either $920 or $1,440 in a year. Thegoing rate on one-year T-bills is 6 percent.a-1. What is the value of the company's equity? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)a-2. What is the value of the debt? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)Answer is complete and correct.306.37928.51a-1. Value of equitya-2. Value of debt$$Suppose the company can reconfigure its existing assets in such a way that the valuein a year will be $940 or $1,740.b. If the current value of the assets is unchanged, what is the new value of thecompany's equity? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)Answer is complete but not entirely correct.Value of equity $ 334.92

The value of the equity can be found by using the average return after assigning weights and…

Answered: Buckeye Industries has a bond issue…

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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Jiminy's Cricket Farm issued a bond with 20 years to maturity and a semiannual coupon rate of 6 percent 3 years ago. The bond currently sells for 103 percent of its face value. The company's tax rate is 22 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Pretax cost of debt b. Aftertax cost of debt % %
I dont understand this homwork Bringham Company issues bonds with a par value of $590,000. The bonds mature in 5 years and pay 9% annual interest in semiannual payments. The annual market rate for the bonds is 12%. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) 1. Compute the price of the bonds as of their issue date.2. Prepare the journal entry to record the bonds’ issuance.
JKJ Company has a $100,000 bond payable, due in 5 years, which pays interest annually of 4%. Without considering the time value of money, how much will be listed in current liabilities on its balance sheet? Select answer from the options below $104,000 $24,000 $100,000 $4,000
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Sunrise, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 8 years to maturity that is quoted at 103.5 percent of face value. The issue makes semiannual payments and has an embedded cost of 5.2 percent annually. What is the company’s pretax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. If the tax rate is 21 percent, what is the aftertax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Oberon, Incorporated has a $30 million (face value) 8-year bond issue selling for 97 percent of par that pays an annual coupon of 8.30 percent. What would be Oberon's before-tax component cost of debt? Note: Round your answer to 2 decimal places. Cost of debt Explanation Solve {$970=$83.00×[1-1/(1+iD)^8/]+iD$1,000(1+iD)8} for iD Yields iD=0.088388, or 8.84%. \table[[A,B,C,],[1,Maturity,8,],[2,Price,97%,$29,100,000.00
(Cost of debt) Temple-Midland, Inc. is issuing a $1,000 par value bond that pays 7.7 percent annual interest and matures in 15 years. Investors are willing to pay $949 for the bond and Temple faces a tax rate of 21 percent. What is Temple's after-tax cost of debt on the bond? The after-tax cost of debt is%. (Round to two decimal places.)
Jones Cricket Institute issued a 30 year, 8 percent semi-annual bond 3 year ago. The bond currently sells for 93 percent of its face value. The Company’s tax rate is 35%. a) What is the pre-taxed cost of debt? Answer % b) What is the after tax cost of debt? Answer % c) Which is more relevant, the pre-tax or the after- tax cost of debt? Why? Answer In the question above, suppose the book value of the debt issues is $60 million. In addition, the company has a second debt issue on the market, a zero coupon bond with 10 years to mature. The book value of this issue is $35 million and the bond sell for 57 percent of par. What is the company’s total book value of debt? $ Answer The total market value? $ Answer What is your best estimate of the after-tax cost of debt now? Answer %
Jiminy's Cricket Farm issued a 30-year, 7 percent semiannual bond 4 years ago. The bond currently sells for 95 percent of its face value. The company's tax rate is 25 percent. a. What is the pretax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b. What is the aftertax cost of debt? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Pretax cost of debt b. Aftertax cost of debt % % c. Which is more relevant, the pretax or the aftertax cost of debt? O Aftertax cost of debt O Pretax cost of debt
The following information applies to the questions displayed below.] Serotta Corporation is planning to issue bonds with a face value of $300,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and does not use a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use appropriate factor(s) from the tables provided.
Mark Motel's debt has a face value of $40 million, a coupon rate of 14% (paid semiannually), and expires in 12 years (at t = 12 . The current annual yield-to-maturity (stated) for all bonds of the company is 15%. Mark wishes to conserve cash for the next few years. To do this, Mark decides to issue new equity and use the proceeds to purchase the existing debt at the market price. The current stock price of Mark is $60 and there are 2 million shares outstanding. 1. How many shares should Mark issue to purchase the existing debt? Assume the decision to purchase the bond does not change the stock price. Instead, the company decides to issue a zero-coupon bond that matures at year 5, and use the proceeds to purchase the existing debt at the market price. 2. What is the face value of the zero-coupon bond that Mark needs to issue?
A company issued bonds with a par value of $250,000 and a maturity of 25 years. The Bonds pay interest every six months based on a nominal interest rate of 8% per year. If on the date of issuance of the bonds the market rate (yield) is 10%: a. What will be the selling price of the bonds? b. If after 15 years the company retires the bonds, paying the amount of $225,000, how much will the gain or loss on debt retirement? Go back and assume that the market rate is 5.75%. a. What will be the selling price of the bonds? b. Make the journal entry to recognize interest expense in the third six-month period of the bonds. Assume that the bonds do NOT pay periodic interest. a. What will be the selling price of the bonds? b. Make the journal entry to recognize interest expense in the third year of the bonds.

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