(Cost of debt) Gillian Stationery Corporation needs to raise $610,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate of 7.9percent with interest paid semiannually and a 15-year maturity. Investors require a rate of return of 10.7 percent.a. Compute the market value of the bonds.b. How many bonds will the firm have to issue to receive the needed funds?c. What is the firm's after-tax cost of debt if the firm's tax rate is 34 percent?a. The market value of the bonds is $ (Round to the nearest cent.)b. The number of bonds that the company needs to sell isbonds. (Round up to the nearest integer.)c. The firm's after-tax cost of debt is. (Round to two decimal places)

The price at which a bond may now be purchased or sold on the financial markets is called its market…

Answered: (Cost of debt) Gillian Stationery…

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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Selling bonds. Lunar Vacations needs to raise $5,700,000 for its new project (a golf course on the moon). Astro Investment Bank will sell the bond for a commission of 2.6%. The market yield is currently 7.2% on twenty-year semiannual bonds. If Lunar wants to issue a 6.1% semiannual coupon bond, how many bonds will it need to sell to raise the $5,700,000? Assume that all bonds are issued at a par value of $1,000. How many bonds will Lunar need to sell to raise the $5,700,000? (Round to the nearest whole number.)
After extensive project appraisal analysis, McCoy Plc has decided to go ahead with the launch of a new gaming platform. The new project will cost £400m and McCoy Plc has decided to raise half of this by issuing bonds. The new bonds were issued today and have a maturity of 6 year, a face value of £100 and a coupon rate of 6%. c) What does the duration of a bond measure? d) Assume one year after issue, the price of each bond is £85. What would the annual return be then?
Mom's Motel Corporation (MM) plans to issue bonds to raise $175 million that it needs to support future operations. MM's investment banker will charge flotation costs of 2.5% of the total amount issued to help MM raise the funds. In addition, MM will incur other costs associated with the issue that equal $500,000. The market value of each bond at issue time will be $1,000. How many bonds must GM sell to net $175 million that it needs?
Gargoyle Unlimited is planning to issue a zero-coupon bond to fund a project that will yield its first positive cash flow in three years. That cash flow will be sufficient to pay off the entire debt issue. The bond's par value will be $1,000, it will mature in 3 years, and it will sell in the market for $727.25. The firm's marginal tax rate is 40 percent.Refer to Gargoyle Unlimited. What is the expected after-tax cost of this debt issue? Group of answer choices 6.10% 6.72% 11.20% 4.00% 4.48%
Orange Ltd is a AAA credit rating company and plans to raise new capital for its new project. The company will use both debt and equity instruments to fund the new project. Orange Ltd will issue 100 new units, 10-year bonds, each bond with a face value of $1000. Each bond will pay a 10% per annum coupon to be paid semi-annually. Currently each bond can be purchased at a price of $950. Previously, Orange Ltd had never issue bonds. Orange Ltd will issue 100 new units of ordinary shares to add to the current 900 units. The current share has a price of $30 each with last year’s dividend at $1.50 per share. The growth rate for earnings and dividends is estimated to be 10% per annum. Orange Ltd will issue 200 new units of preference shares is currently selling at $45 per share to add to the current 800 shares. The preference shares carry a yearly dividend of $4.00 per share. The flotation costs are 1% of the selling price for the preference shares. The relevant corporate tax rate is 30%.…
Suppose that LilyMac Photography expects EBIT to be approximately $ 210,000 per year for the foreseeable future, and that it has 1, 000 10-year, 9 percent annual coupon bonds outstanding. What would the appropriate tax rate be for use in the calculation of the debt component of Lily Mac's WACC?
JJ. 182.
Builtrite needs to raise $2,000,000 for a plant improvement. It plans to sell $1000 par value bonds with a 10% coupon rate arde a 15 year maturity. Investors require a 9% rate of return. Calculate the market value of the bonds, what is the net price of the bonds if flotation costs are 5% of the market price?
Harbor Inc. wants to raise $80 million by issuing 10-year zero-coupon bonds at an annual interest rate of 5.4%. What should be the total face value of the bonds (in $ million)?
Bobcaygeon Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.3 percent, payable annually. The one-year interest rate is 6.3 percent. Next year, there is a 36 percent probability that interest rates will increase to 8.3 percent, and there is a 64 percent probability that they will fall to 4.3 percent. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What will the market value of these bonds be if they are non-callable? (Omit $ sign in your response.) Price of the bond $ b. If the company instead decides to make the bonds callable in one year, what coupon will be demanded by the bondholders for the bonds to sell at par? Assume that the bonds will be called if interest rates fall and that the call premium is equal to the annual coupon. Coupon rate c. What will be the value of the call provision to the company? (Omit $ sign in your response.) Call provision value %
Selling bonds. Lunar Vacations needs to raise $6,300,000 for its new project (a golf course on the moon). Astro Investment Bank will sell the bond for a commission of 2.7%. The market yield is currently 7.8% on twenty-year semiannual bonds. If Lunar wants to issue a 5.9% semiannual coupon bond, how many bonds will it need to sell to raise the $6,300,000? Assume that all bonds are issued at a par value of $1,000.
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.

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